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Building a Technically
Skilled Workforce
Partnerships between Community Colleges
and Industries Are the Key
Louis Soares and Stephen Steigleder January 2012
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The third report in a series on U.S. science and economic competitiveness from the
Doing What Works and Science Progress projects at the Center for American Progress
About this series on U.S. science
and economic competitiveness
Te U.S. Congress in late 2010 asked the Department of Commerce to complete two studies as part
of the reauthorization of the America COMPETES Act. Te hrst, which was released on January 6th,
2012, at the Center for American Progress, focuses on U.S. competitiveness and innovation. Te sec-
ond, due to Congress in early 2013, oners specihc recommendations for developing a 10-year national
innovation and competitiveness strategy.
We applaud the commissioning of these reports but believe we cannot anord to wait that long to take
action. Tats why we convened in the spring of 2011 the group of experts listed on the following page.
We spent two days in wide-ranging discussion about the competitive strengths and weaknesses of our
nations scientihc endeavors and our economy, before seuling upon the topics that constitute the series
of reports we publish here. Each paper in the series looks at a dinerent pillar supporting U.S. science
and economic competitiveness in a globally competitive economy:
r
Rewiring the Federal Government for
Competitiveness
r
Economic Intelligence
r
Universities and Innovation Networks
r
Manufacturers in Innovation Networks
r
Building a Technically Skilled Workforce
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Immigration for Innovation
Te end result, we believe, is a set of recommendations that the Obama administration and Congress
can adopt to help the United States retain its economic and innovation leadership and ensure that all
Americans have the opportunity to prosper and nourish now and well into the 21st century.
Many of our recommendations are sure to spark deep resistance in Washington, not least our proposal
to reform a number of federal agencies so that our government works more enectively and emciently in
the service of greater U.S. economic competiveness and innovation. Tis and other proposals are sure
to meet resistance on Capitol Hill, where dinerent congressional commiuees hold sway over diner-
ent federal agencies and their policy mandates. Tats why we open each of our reports with this one
overarching recommendation: Congress and President Obama should appoint a special commission to
recommend reforms that are packaged together for a single up-or-down vote in Congress. In this way,
thorough-going reform is assured.
Tis new commission may not adopt some of the proposals put forth in this series on science and
economic competitiveness. But we look forward to sharing our vision with policymakers as well as the
American people. President Obama gets it right when he says, To win the future, we will have to out-
innovate, out-educate, and out-build our competitor nations. We need to start now.
Coordinating editors for the series on U.S. science and economic competitiveness
Ed Paisley, Vice President, Editorial, American Progress
Gadi Dechter, Associate Director, Government Reform, Doing What Works
Sean Pool, Assistant Editor, Science Progress
American Progress taskforce on U.S. science and economic competitiveness
John Alic, science, technology, and economic policy
consultant and former stan member of the Congressional
Omce of Technology.
Joseph Bartlett, of counsel in Sullivan & Worcesters
corporate department and former undersecretary of
commerce at the U.S. Department of Commerce.
Maryann Feldman, S.K. Heninger distinguished chair in
public policy at the University of North Carolina, Chapel Hill.
Kate Gordon, VP for Energy Policy at the Center for
American Progress.
Michael Gurau, president, Clear Innovation Partners, a
venture capital investment hrm.
David Hart, director of the Center for Science and
Technology Policy at George Mason University School
of Public Policy.
Christopher Hill, professor of public policy and technol-
ogy at George Mason University School of Public Policy
and former vice provost for research at George Mason.
Neal Lane, senior fellow for science and technology
policy at Rice University and former advisor to the
president on science and technology policy.
Rachel Levinson, director of National Research Initiatives
at Arizona State University and former assistant director
for life sciences at the White House Omce of Science and
Technology Policy.
Jonathan Moreno, Editor-In-Chief of Science Progress
and Senior Fellow at the Center for American Progress.
Arti Rai, Elvin R. Lauy Professor of Law at Duke
University and former Administrator for External
Anairs, USPTO.
Andrew Reamer, research professor at the George
Washington University Institute of Public Policy and
non-resident senior fellow at the Brookings Institution.
RoseAnn B. Rosenthal, president and CEO, Ben
Franklin Technology Partners of Southeastern
Pennsylvania.
Jonathan Sallet, partner in the law hrm of OMelveny
& Myers LLP, Science Progress advisor, and former
director of the Omce of Policy and Strategic Planning
of the U.S. Department of Commerce.
Daniel Sarewiz, director of the Consortium for
Science, Policy, and Outcomes at Arizona State
University.
James Turner, Senior Counsel for Innovation &
Technology, and Director of Energy programs at the
Association of Public and Land-Grant Universities
and former professional stan and chief counsel for the
House Commiuee on Science and Technology.
William A. Wulf, professor of computer science at the
University of Virginia and former president of the
National Academy of Engineering.
Building a Technically
Skilled Workforce
Partnerships between Community Colleges
and Industries Are the Key
Louis Soares and Stephen Steigleder January 2012
Contents 1 Introduction and summary
3 A shortage of skilled workers
6 Community college and industry partnerships
11 Taking community college and industry partnerships
to the next level
16 Conclusion
17 About the authors and acknowledgements
18 Endnotes
1 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
Introduction and summary
For the United States to keep its leadership position in the global economy, our
workforce must be able to keep pace with the knowledge and innovation that
drives the development of new industries. On one end of the spectrum, that means
incubating the worlds best scientists and engineers to continue to break down
scientihc barriers and invent new technologies. But highly educated scientists and
engineers are only a small part of the overall workforce, comprising approximately
5 million of the nations 150 million workers.
1
Our long-term economic
competitiveness also depends on boosting the education and technical skills of
millions of middle-skill workers for careers in emerging and highgrowth industries
such as health care, biotech, nanotech, clean energy, and advanced manufacturing.
Tese types of technically skilled workers generally boast an associates degree or
industry-recognized postsecondary credential, but unfortunately we are falling
woefully short in our enorts to develop a sumcient number of these middle-skill
workers. We are currently on pace to encounter a shortage of nearly 5 million work-
ers with postsecondary credentials-such as welders and nursing assistants-by
2018.
2
Such an eventual shortage of qualihed workers to hll these skilled positions
will result in slower economic growth and a lower standard of living.
But there is a solution. We already have an underlying system in place-the com-
munity college system-that can be modihed and scaled up to meet our long-
term needs for middle-skill workers. Te community college system sits at the
crossroads of higher education and the professional world. Community colleges
serve a more diverse student body than fouryear colleges. And they also have
experience working directly with private sector employers to design and adapt
programs to address specihc labor market needs.
To produce more of the skilled workers that America will require to be globally com-
petitive, we recommend implementing a competitive grant program to spur inno-
vation in our community college system. More specihcally, the grant competition
should be used to scale up the availability of community college and industry partner-
ships that lead to associates degrees and one-year certihcates with labor market value.
2 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
Our proposed Community College and Industry Partnership Grant program would
encourage bouom-up collaborations between community colleges and groups of
businesses or industries. Te grants would combine public and private resources
to create alternative college education programs that are tightly linked to regional
economic development. By partnering with private industry, these programs ensure
that academic credentials are directly linked to current job requirements and that
program expansion is based on future job openings.
Indeed, these kinds of private-public partnerships are already proving their worth in
meeting the needs of three important constituencies:
r
Students and workers obtain postsecondary credentials that prepare them for
skilled careers that pay middle-class wages
r
Local businesses gain employees with specihc skills to match their needs
r
Regional economies gain a competitive advantage over their global competitors
We detail two of the more successful of these partnerships in this paper. One
involves United Parcel Service, the state of Kentucky, and Jenerson Community and
Technical College in Louisville. Te other features Columbia Gorge Community
College in Te Dalles, Oregon, alongside Acciona Energy North America (a unit
of Spanish energy company Acciona SA), global engineering company Black and
Veatch, chip maker Intel, and the U.S. Army Corps of Engineers to develop a pilot
curriculum for a renewable energy technology program.
To expand this kind of necessary collaboration through our proposed Community
College and Industry Partnership Grant program, we recommend converting the
postsecondary portion of the so-called Perkins Career and Technical Education
State Grants-approximately $300 million to $400 million annually-into a
nationwide grant competition. Shining to a competitive grant would redirect
approximately one-third of Perkins CTE funding, which is now targeted toward
these same kinds of middle-skill worker training programs, toward programs with
a more direct link to regional labor markets. We also believe that a competition to
fund this kind of public-private partnerships holds the greatest potential to spur
innovation and auract matching funds from the private sector.
In the pages that follow, this paper makes the case for a competitive Community College
and Industry Partnership Grant program. We hrst discuss our projected shortage of
skilled workers and then outline a proposal to increase the number of workers earn-
ing associates degrees and one-year credentials via this grant program-an expansion
necessary to support long-term innovation and maintain our economic competitiveness.
Our economic
competitiveness
depends on the
technical skills of
millions of middle-
skill workers in
emerging and
highgrowth
industries from
biotech, to
clean energy
to advanced
manufacturing.
3 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
A shortage of skilled workers
As hrms create new business models and redesign work practices to stay ahead of
global competition, they will need a growing workforce of technicians and mid-
level employees with higher-level skills than were necessary in the 20th-century
economy. According to the Georgetown University Center on Education and the
Workforce, our economy will grow by 14.4 million jobs between 2008 and 2018.
Of those net new jobs, 97 percent are expected to be in industries-such as sci-
ence- and technology-based industries-that will require some form of education
beyond high school.
3
But by any reasonable measure, our current education and workforce training
system is not meeting the demand for beuer-educated workers. Right now our
workforce is too concentrated at the low end of the education spectrum. (See Box
and Figure 1.) To maintain our economic competitiveness, we need to provide
more opportunities for workers to advance from low-skill and middle-skill careers
into middle-skill and high-skill careers.
Approximately 44 percent of American workers do not have any education beyond
a high school diploma, 26 percent have some college education or an associates
degree, and 30 percent have a bachelors degree or higher. Those gures fall short of
the needs of our increasingly knowledge-based economy.
By2018, only 37percent of jobs will be open to workers with a high school diploma,
while 30 percent of jobs will require some form of postsecondary education and
33percent of jobs will require at least a bachelors degree. As a result, job opportuni-
ties available to workers with only a high school education will stagnate. But oppor-
tunities for workers with a college degree or postsecondary credential will grow.
Wanted: More middle-skill workers
4 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
The education gap
Educational attainment in 2010 versus projected distribution of jobs by
education level in 2018
Moreover, high-growth science and
technology industries are raising the bar
for workplace readiness. Employers expect
their new hires to arrive on the worksite
with a practical mix of academic learn-
ing, experience, and adaptability.
1
Going
forward, postsecondary education and
workforce training will need to integrate
classroom learning with hands-on work
experience to ensure that technical work-
ers are prohcient in up-to-date technolo-
gies, can solve real-world problems, and
are ready to hit the ground running in
todays team-based workplaces.
Unfortunately, the various components of
our postsecondary education and work-
force training system are not working together to provide this combination of
skills training and hands-on experience. Tere are three main reasons why.
First, our postsecondary system of two- and four-year colleges is designed for a
full-time student working toward a degree over a hxed and continuous period of
time. Tis lack of nexibility is a huge impediment for the majority of Americans
who have already begun their working lives. In reality, 61 percent of adults age
25 and over do not have a college degree or postsecondary credential, including
75 million Americans between the ages of 25 and 54.
2
But many of those adults
could improve their skills in a reasonable amount of time-if onered a nexible
program leading to a beuer career-since 34 million of them already have a high
school diploma and an additional 22 million have spent some time in college or
postsecondary training.
Second, the Perkins Career and Technical Education program-our largest federal
program specihcally focused on creating a workforce with technical skills-lacks
sumcient scale to meet the growing need for skilled workers. Its meager budget
of $1.1 billion, aner an 11 percent cut in Fiscal Year 2011 ending in September, is
distributed to states through a population-based formula and then further divided
between high school and postsecondary education programs.
50
40
30
20
10
0
Low-skill workers Middle-skill workers High-skill workers
Educational attainment of U.S. population age 25 and over, 2010
Distribution of jobs and education level, 2018
Source: U.S. CensusBureau; Georgetown University
Center on Education and the Workforce.
5 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
Furthermore, the Obama administration proposed an additional 11 percent cut
to the Perkins Career and Technical Education program in FY 2012 beginning
in October. Te administration suggested that it has been dimcult to determine
whether the program has been enective.
3
But that does not mean postsecondary
education and training isnt a vital component of building a skilled technical work-
force. It simply means that we need to fund programs that are more enective at com-
bining technical skills and hands-on experience, are closely connected to regional
employers, and have the potential to induce investment from the private sector.
And third, our Workforce Investment Act, or WIA system, is underfunded and
too focused on onering short-term crisis intervention rather than building long-
term technical skills that impart recognizable value in the labor market. Annual
funding for the Department of Labors Training and Employment Service-the
location of most WIA funding-was reduced to $3.3 billion in FY 2011, a cut
of approximately 13 percent. To put that funding level into perspective, it is less
than $135 for each of the 25 million Americans who are currently unemployed or
underemployed.
In addition, the WIA system is largely focused on crisis management, which is
understandable since the system is primarily measured by the number of work-
ers who are quickly returned to employment and whether those workers are still
employed six months later. While rapid employment is a worthwhile goal, it is not
particularly helpful for building a workforce with the type of science and tech-
nology skills that will serve as a foundation for the knowledge-based economy.
According to the Department of Labor, only 200,000 individuals earn a credential
each year through WIA job training programs.
4
Ultimately, the development of a more competitive workforce will require bet-
ter integration of these overlapping systems. Tis will require a hybrid model
that combines the educational rigor of higher education with the nexibility and
labor-market focus of industry-based workforce training. Tis hybrid system
needs to provide postsecondary credentials through a combination of academic
coursework and applied learning so that employees can hit the ground running in
science- and technology-based industries. In the following section, we outline one
of our recommendations to hasten the development of such a system.
The US is currently
ranked at an
embarrassing 12th
in the world for
degree attainment
among 25- to 34-
year olds.
6 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
Community college
and industry partnerships
Fortunately, there is already an underlying structure in place that can be modi-
hed and scaled up to meet our long-term workforce development needs. Te
community college system sits at the crossroads of higher education and the
professional world. Community colleges serve an estimated 12 million for-
credit and noncredit students. Tey dwarf other postsecondary education pro-
viders, including fouryear schools and workforce training programs, in terms of
access to education and cost of services.
Community colleges also serve a more diverse student body than fouryear
colleges-including a signihcant percentage of older students, hrst-generation
college students, and full-time workers. And community colleges have expe-
rience working directly with private-sector employers to design and adapt
programs to address specihc labor market needs.
To build a more competitive and technically skilled workforce, we recom-
mend redirecting $300 million to $400 million from the Perkins Career and
Technical Education program and using those funds to create a competitive
Community College and Industry Partnerships Grant program that integrates
higher education with real-life experience. Before we detail this recommenda-
tion, though, we need to hrst demonstrate how well existing community col-
lege and industry partnerships work.
Community college and industry partnerships are collaborations between a
community college and a group of businesses or industry sector. Te part-
nerships combine public and private resources to create alternative college
education programs that are tightly linked to regional economic development.
Partners contribute direct funding, human resources, facilities, equipment, and
expertise to the programs.
7 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
A recent article in Businessweek provides an example of one of the nations most
successful community college and industry partnerships.
5
Te article describes
the reciprocal relationship between Macomb Community College and the
automotive industry in Macomb County, Michigan:
e county is home to both a GM transmission plant and the GM Technical
Center, the companys main design and engineering complex. Because of its
location, the college has long had a symbiotic relationship not only with GM
Macomb Community College President James Jacobs estimates that 40 percent
of the designers there studied at Macombbut with most of the local manufac-
turing sector, providing companies with graduates while drawing on them for
funding, faculty, and even state-of-the-art equipment. Haas Automation, the
countrys largest machine tool maker, supplies the college with CNC mills and
lathes. All of the Big ree have outsourced training for their own employees to
the college over the years, collaborating to design curricula and tests. Macomb
has a deep familiarity with the workforce needs of those companies and connec-
tions with the people who do the hiring. e result is an informal system that
quickly matches workers with the labor needs of companies.
Te purpose of these partnerships is to develop alternate pathways to postsec-
ondary credentials that are explicitly linked to the labor market. By partnering
with private industry, these programs ensure that academic credentials are
directly linked to current job requirements and that program expansion is based
on future job openings. Tis is particularly important for individuals who are
not on a traditional college track.
We believe that programs should always lead to a postsecondary credential such as
an associates degree, occupational license, or technical certihcation. Such creden-
tials are portable and provide an additional level of stability for middle-skill workers.
Over the long term, it would be preferable to have nationally recognized credentials
to ensure the highest degree of nexibility for skilled workers, but current industry-
recognized credentials and state certihcations are a good place to start.
Successful community college and industry partnerships meet the needs of three
important constituencies:
r
Students and workers obtain postsecondary credentials that prepare them for
skilled careers that pay middle-class wages
The community
college system is
ideally positioned
to address the
challenges
of building a
skilled technical
workforce, but it
must be built upon.
8 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
r
Local businesses gain employees with specihc skills to match their needs
r
Regional economies gain a competitive advantage over their global competitors
Te community college system is ideally positioned to address the challenges
of building a skilled technical workforce. Community colleges already serve
millions of adult workers who are going back to school to earn specihc skills to
advance their careers. Community colleges are accredited to dispense degrees and
industry-recognized credentials that certify those skills have been achieved. And
community colleges have the nexibility to work directly with regional employers
to ensure that academic curricula stay up-to-date with current industry standards.
Examples of community college and industry partnerships
Te following two case studies exemplify the type of community college and
industry partnerships that we believe need to be expanded to develop a com-
petitive workforce. Tese examples are taken from a previous paper, Te Power
of the Education-Industry Partnership,
6
by one of this papers authors. Te
examples demonstrate the success that is possible when community colleges
and private industry work together to design programs that are equally beneh-
cial to students and employers.
Te hrst case study involves United Parcel Service. In 1996, UPS considered
moving its hub from Louisville, Kentucky, because it was having trouble stamng
its Next Day Air shin. As the largest employer in the state, the loss of UPS would
have been devastating to local residents and the regional economy. Fortunately,
the temporary crisis led to a long-term and mutually benehcial partnership
between UPS, the state of Kentucky, and Jenerson Community and Technical
College in Louisville.
Te result of this industry partnership is Metropolitan College-a collaboration
among UPS, state and local government, and the public college system. UPS
provides part-time employment for students in the program, pays half the cost of
tuition, and provides reimbursement for textbooks. Te state and local govern-
ments pay the other half of tuition and provide students with access to JCTC and
the University of Louisville. Students who participate in Metropolitan College
work part-time on the Next Day Air night shin with full-time benehts while
auending college during the day.
9 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
Te Metropolitan College Program has been extremely successful. Prior to its
inception, only 8 percent of UPS workers had a postsecondary degree. A decade
later, that hgure increased to approximately 45 percent of the UPS workforce. In
addition, UPS increased job retention as the annual turnover rate for new hires
went from 100 percent in 1998 to 20 percent in 2009, which created a 600 percent
return on investment in its students.
7
Many community college-industry partnerships, like the UPS example, begin
with a workforce need expressed by an individual employer. Other partnerships
begin with a community college that recognizes a regional economic sector
challenge and calls upon businesses to help it meet the challenge. Tese sector
initiatives can be hugely benehcial to both the college and the industry, but it
takes initiative on the part of the community college to recognize a change in
the workforce and act upon it.
Te second case study occurs in the Pacihc Northwest. In 2006, Columbia Gorge
Community College in Te Dalles, Oregon, noted the emergence of a wind
energy industry around the college and took the initiative to start a new program
that would address regional employment opportunities. As windmills went up,
turbine companies needed a local workforce to service them. Columbia Gorge
Community College saw an opportunity to fulhll a workforce need while also
working with existing resources at the college to create a postsecondary credential
in the wind energy held.
Te community college partnered with industry and workforce development rep-
resentatives-including Acciona Energy North America, a unit of Spanish energy
company Acciona SA; global engineering company Black and Veatch Corp.;, chip
maker Intel Inc., and the U.S. Army Corps of Engineers-to develop a pilot cur-
riculum for a renewable energy technology program. Tese partnerships included
input from industry representatives as well as professional development opportu-
nities for the community college faculty.
Columbia Gorge Community College relied upon donations from industry, but it
also drew upon the colleges existing resources to shape its new Renewable Energy
Technology Program. Te college now oners one- and two-year programs that
prepare students to work in wind-generation, hydro-generation, automated manu-
facturing, and engineering technician work. More than 100 students enroll in the
program each year and the college reports that 80 percent of completers who want
to work in a wind plant are hired.
8
We need to provide
more opportunities
for workers to
advance from
low-skill and
middle-skill careers
into middle-skill
and high-skill
careers.
10 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
Best practices
Although community college and industry partnerships are created as unique
solutions to specihc regional economic circumstances, a set of best practices is
beginning to take shape. According to the League of Innovation in Community
Colleges, an international advocacy organization, successful partnerships include
the following characteristics:
9
r
Shared resources. Partnerships require a real commitment from both sides.
Partners contribute direct funding, human resources, facilities, equipment, and
expertise to ensure that programs are mutually benehcial and sustainable.
r
Curriculum and instructional transformation. Partnerships hnd new and
innovative ways to deliver highquality instruction. Employers guarantee that
academic coursework and hands-on experience are directly linked to industry
practice in the real world. Partnerships provide new examples of contextualized,
modularized, and competency-based curriculum; accelerated degree comple-
tion; workplace-based learning; and learn-and-earn models.
r
Academic and social support. Partnerships create sustained academic and
career navigation supports for students. Examples include forming small learn-
ing communities or funding a career center that provides hnancial aid, academic
advising, and career advising.
r
Professional development. Partnerships provide resources for community col-
lege faculty to maintain up-to-date skills and industry knowledge. Faculty mem-
bers coordinate with employers to design new curricula, integrate academic and
technical coursework, and track student progress and employer needs.
r
System-wide improvement. Partnerships generate system-wide changes in a com-
munity colleges mission, strategic planning, and resource allocation. Tey simplify
enrollment for nontraditional students and prompt community colleges to hnd
new ways to oner credit for learning technical skills-such as articulation agree-
ments, prior learning assessments, and competency-based evaluations.
Tese best practices can and should become key components of our competitive
Community College and Industry Partnerships Grant program. To this we now turn.
Community college
and industry
partnerships are
collaborations
between a
community college
and a group of
businesses or
industry sector.
11 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
Taking community college and
industry partnerships to the next level
Our hrst choice to fund our competitive Community College and Industry
Partnerships Grant program would be to fulhll President Obamas American
Graduation Initiative, which proposed to spend $12 billion over 10 years to return
the United States to having the highest proportion of college graduates in the
world by 2020.
10
We are currently ranked at an embarrassing 12th in the world for
degree auainment among 25- to 34-year olds. Unfortunately this important initia-
tive has already been scaled down to $2 billion and is too small to accomplish the
ambitious goals of the original American Graduation Initiative.
Terefore, recognizing that new investments in workforce development will
likely be opposed by conservatives in Congress, our second choice to fund this
initiative is to use $300 million to $400 million that is currently allocated to the
Perkins Career and Technical Education program. Perkins Career and Technical
Education is the largest federal program focused on creating a workforce with
technical skills. It provides approximately $1.1 billion annually to support high
school and community college programs across all 50 states, the District of
Columbia, and our outlying territories.
But the program is not targeted well enough to support the level of innovation
this country needs. Te current method of distributing Perkins Career and
Technical Education funding through a population-based formula simply rein-
forces the status quo, which will lead to a projected shortfall of nearly 5 million
middle-skill workers by 2018.
11
Tis is why we recommend converting the postsecondary portion of Perkins
Career and Technical Education State Grants-approximately $300 million to
$400 million annually-into a nationwide grant competition focused on expand-
ing community college and industry partnerships. Shining to a competitive grant
would redirect Perkins Career and Technical Education funding to programs with
the most direct link to regional labor markets. We also believe that a competition
12 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
to fund Community College and Industry Partnerships Grants holds the greatest
potential to spur innovation and auract matching funds from the private sector.
Te competition would be modeled on similar competitive grant programs man-
aged by the departments of Education and Labor. Grants would be awarded to
partnerships that demonstrate the greatest potential to leverage private-sector
investment, combine academic instruction and hands-on professional experience,
and expand education and training opportunities for students and workers who
arent being adequately served by the current system.
Purpose
Te purpose of the grant competition would be to stimulate the development
of alternative pathways to earning an associates degree or industry-recognized
credential. Tese pathways should combine the academic rigor of higher educa-
tion with the nexibility and hands-on experience of an industry-sponsored
job-training program. Specihcally, the competitive grant application process
must emphasize education and training activities based on certain eligibility
requirements and the commitment of matching funds. Lets look at each these
requirements brieny in turn.
Education and training activities
A broad range of activities would be eligible for grant funding. Applicants, how-
ever, would need to demonstrate how their proposed programs align with indus-
try partnership best practices, as described in the previous section of this paper.
Tose best practices are:
r
Shared resources
r
Curriculum and instructional transformation
r
Academic and social support
r
Professional development
r
System-wide improvement
Partnerships would be encouraged to develop programs that are not based on the
traditional academic calendar. Te typical semester-based system-beginning in
late August and ending in early June-is completely unrelated to the amount of
13 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
time it takes to learn a subject or master a skill. So there is no reason to assume
that a new program needs to be taught in a traditional semester format.
Within the partnership, community colleges also would be tasked with develop-
ing a method to award credit toward a degree or credential. Conversely, employers
would be charged with ensuring that program assessments are tied to practical
industry standards and lead to degrees and credentials that are portable and recog-
nized by the industry sector.
In order to encourage sustained, systemic change to community college instruc-
tional delivery, grant funding should be targeted to institutions that are willing
to overhaul their course onerings to fully integrate academic and vocational skill
development. Community colleges have historically operated these programs as
separate entities within their governance and business models, including separate
operations, stan, and funding mechanisms.
Our proposed Community College and Industry Partnerships Grant program
should be designed to eliminate these silos by combining classroom learning with
real-world content. Any auempt to simply bolt on a sector strategy to a schools
existing academic curriculum should be rejected.
Additionally, this grant program would be an ideal candidate for inclusion in a
broader federal Common Application grant program, as described by our col-
leagues Jonathan Sallet and Sean Pool in Rewiring the Federal Government for
Competitiveness, the hrst paper in this series.
Eligibility and matching funds
Te potential impact of this grant competition is based on its ability to maximize
federal investment in education and workforce training by leveraging private-sec-
tor resources. So it is important to establish minimum requirements for a partner-
ships matching funds. To be eligible for a competitive federal grant, partners need
to have skin in the game.
At a minimum, we expect the partnerships to provide matching funds worth 50
percent of the total grant. For instance, a partnership applying for a $2 million
grant should contribute an additional $1 million in matching funds, for a total
program budget of $3 million. For community colleges and employers, matching
To be eligible for a
competitive federal
grant, partners
need to have skin
in the game.
14 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
funds will most likely come in the form of instructors, facilities, equipment,
and tuition payments, among other possibilities. Partners are encouraged to
pool resources to make joint purchases for the proposed program. In-kind
contributions are also highly encouraged, although partners should not be able to
fulhll 100 percent of their matching requirements through in-kind contributions.
Grant proposals should demonstrate full buy-in from the partners, including cash
contributions. Partnership applications that oner higher levels of private-sector
matching funds should receive preference in the grant competition if the additional
resources would lead to more students and workers earning degrees and credentials.
To be eligible, partnerships would have to include the following entities:
r
A community college or consortium of community colleges. Similar to the
Department of Labors Trade Adjustment Assistance Community College and
Career Training Grant, eligibility would be limited to institutions of higher edu-
cation that oner programs that can be completed within two years.
12

r
An employer or consortium of employers. Similar to the Department of
Labors H-1B Technical Skills Training Grants, eligibility would be extended
to partnerships that include multiple businesses in an industry cluster, which is
a concentration of interconnected businesses, suppliers, research and develop-
ment, service providers, and associated institutions in a particular held linked by
common workforce needs.
13

In addition, expanding the partnerships to include nonprohts, unions, workforce
investment boards, and regional development boards would be highly encour-
aged. Additional partners, however, would be expected to make contributions
toward the partnerships matching fund requirement.
Criteria
Grant applications would be evaluated according to three main criteria. Te hrst
is the partnerships potential to expand the availability of alternative pathways
to earning an associates degree or industry-recognized credential. Right now
our community college system too onen considers workforce training to be a
distraction from its core mission. And workforce training too onen focuses on
short-term programs that do not result in degrees or credentials that workers
Grant applications
would be evaluated
according to three
main criteria:
expanding
opportunities,
serving non-
traditional learners,
and private
sector investment
leverage.
15 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
will take with them from workplace to workplace. Grant applicants should be
evaluated according to their ability to hasten the convergence of these unneces-
sarily disparate systems.
Te second criterion is the partnerships ability to serve nontraditional learn-
ers. Tere are 75 million Americans between the ages of 25 and 54 who lack a
college degree or postsecondary credential. Grant applicants should be evalu-
ated according to their ability to help these workers move up the education and
training ladder.
Te third is the partnerships ability to leverage private sector investment.
According to the Georgetown University Center on Education and the
Workforce, private sector businesses spend approximately $140 billion annually
on formal job training programs. Tis is substantially more than the $54 billion
worth of public funds invested annually in two-year colleges and job training
programs.
14
Grant applicants should be evaluated according to their ability to
increase access to education and workforce training by leveraging private sector
cooperation and resources.
Applicants would be expected to address each of these criteria in their grant
applications.
16 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
Conclusion
In its current form, our education and workforce training systems will not be able
to develop a sumcient number of skilled workers to meet the countrys future eco-
nomic needs. We are currently on pace to encounter a shortage of 3 million work-
ers with college degrees and nearly 5 million workers with industry-recognized
credentials by 2018.
15
Part of the shortfall is due to underfunding of education and
training programs; unfortunately, in the short term it is unlikely that the federal
government will signihcantly increase its investment in these vital programs. So it
becomes increasingly important to use existing resources to spur innovation and
leverage private sector investment to develop a competitive workforce.
A substantial expansion of Community College and Industry Partnerships
through our proposed competitive grant program oners the opportunity to
build a more competitive workforce by aligning community college programs
with high-growth industries in regional labor markets. Expanding these partner-
ships has the potential to increase the number of workers earning postsecond-
ary degrees and credentials, while improving the value of those degrees and
credentials by tying them directly to the needs of regional employers. While
this transition is not sumcient to solve our national shortage of skilled workers,
it is an improvement for workers, employers, and taxpayers, and a step toward
rebuilding a strong middle class.
17 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
About the authors
Louis Soares is the Director of the Postsecondary Education program at the
Center for American Progress. He manages the policy teams work on workforce
training and on community and four-year college education. Prior to joining
American Progress, he served as director of business development in the admin-
istration of Rhode Island Governor Donald L. Carcieri, where he managed the
states policy incentives for workforce training, business auraction, export assis-
tance, government contracting, and small business from 2003 to 2006. Soares
holds a masters degree in public administration from Harvard University and a
bachelors degree in business economics from Brown University.
Stephen Steigleder is a Policy Analyst with the Postsecondary Education Program
at the Center for American Progress. Prior to joining CAP, he served as a commit-
tee staner on the House Appropriations Commiuees Labor, Health and Human
Services, and Education Subcommiuee. Steigleder holds a masters degree in
public policy from Georgetown University and a bachelors degree in history from
Santa Clara University.
Acknowledgements
Members of our taskforce on science and competitiveness provided construc-
tive criticism, feedback, and ideas indispensable to this series. In particular, James
Turner, Neal Lane, Brian Kahin, Arti K. Rai, Rachel Levinson, Daniel Sarewitz, John
Alic, and Chris Hill provided critical feedback. Finally, this series would also not
have been possible without important and substantive contributions from Sarah
Wartell, Michael Eulinger, Jitinder Kohli, Kate Gordon, and Reece Rushing.
18 Center for American Progress | Building a Technically Skilled Workforce: Partnerships Are the Key
Endnotes
1 National Science Board, Science and Engineering Indicators:
2010, Appendix Table 3-2, available at http://www.nsf.gov/statis-
tics/seind10/.
2 Anthony Carnevale, Nicole Smith, and Je Strohi, Help Wanted:
Projections of Jobs and Education and the Workforce, 2010), avail-
able at http:??www9.georgetown.edu/grad/gppi/hpi/cew/pdfs/
ExecutiveSummary-web.pdf.
3 ibid.
4 Susan J. Schurman and Louis Soares, Connecting the Dots: Creating
a Postsecondary Education System for the 21st-Century Workforce,
in Transforming the U.S. Workforce Development System: Lessons
From Research and Practice (Champaign, IL: Labor and Employment
Relations Association, University of Illinois at Urbana-Champaign,
2010); and John A. Alic, Technical Knowledge and Experiential
Learning: What People Know and Can Do,Technology Analysis and
Strategic Management, Vol. 20, No. 4, July 2008, 427 442.
5 U.S. Census Bureau, Educational Attainment in the United States:
2010,available at http://www.census.gov/hhes/socdemo/education/.
6 U.S. Department of Education, Fiscal Year 2012 Department of
Education Justications of Appropriation Estimates to the Congress,
Volume II: p. N-16.
7 U.S. Department of Labor, Budget Justication of Appropriation Es-
timates for Committee on Appropriations, Fiscal Year 2012,Volume
I: p. ETA-3.
8 Drake Bennett, Can Retraining Give the Unemployed a Second
Chance?, Businessweek, Sept. 14, 2011, available at http://www.
businessweek.com/magazine/can-retraining-give-the-unemployed-
a-second-chance-09142011.html.
9 Louis Soares, The Power of the Education-Industry Partnership
(Washington: Center for American Progress, October 2010), avail-
able at http://www.americanprogress.org/issues/2010/10/commu-
nity_colleges.html.
10 Ibid.
11 Ibid.
12 Jim Jacobs and others, Career Pathways as a Systemic Framework:
Rethinking Education for Student Success in College and Careers
(Phoenix: League of Innovation in Community Colleges, 2007),
available at http://www.league.org/league/projects/ccti/les/Sys-
temic_Framework.pdf.
13 Video and fact sheets available at the White House Oce of Social
Innovation and Civic Participation blog, http://www.whitehouse.
gov/blog/Investing-in-Education-The-American-Graduation-Initia-
tive/.
14 Carnevale, Smith, and Strohl, Help Wanted.
15 U.S. Department of Labor, Notice of Solicitation for Grant Applications,
SGA/DFA PY 10-03. http://www.doleta.gov/grants/pdf/SGA-DFA-
PY-10-03.pdf
16 U.S. Department of Labor, Notice of Solicitation for Grant Applica-
tions, SGA/DFA PY 10-13. http://www.doleta.gov/grants/pdf/SGA-
DFA-PY-10-13_Final_H-1BSGA.pdf
17 Carnevale, Smith, and Strohl, Help Wanted.
18 Ibid.
1222 H S1RLL1, NW, 101H FLOOR, WASHlNG1ON, DC 2000S - 1LL: 2026821611 - FAX: 2026821867 - WWW.AMLRlCANPROGRLSS.ORG
About the Center for American Progress
The Center for American Progress is a nonpartisan research and educational institute dedicated
to promoting a strong, just and free America that ensures opportunity for all. We believe that
Americans are bound together by a common commitment to these values and we aspire to ensure
that our national policies reect these values. We work to nd progressive and pragmatic solutions
to signicant domestic and international problems and develop policy proposals that foster a
government that is of the people, by the people, and for the people.
About Doing What Works
CAPs Doing What Works project promotes government
reform to eciently allocate scarce resources and achieve
greater results for the American people. This project
specically has three key objectives:
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and tax expenditures, focused on priority areas such as
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management and strengthening operations in the areas of
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enhancing transparency and performance
measurement and evaluation
About Science Progress
Science Progress, a project of the Center for American
Progress, is designed to improve public understanding
of science and technology and to showcase exciting,
progressive ideas about the many ways in which
government and citizens can leverage innovation for the
common good. Since its inception in the fall of 2007, Science
Progress has helped shape the conversation about our
countrys investment in science.
Rewiring the Federal Government
for Competitiveness
A New Cabinet Department for the 21st Century
Jonathan Sallet and Sean Pool January 2012
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The first report in a series on U.S. science and economic competitiveness from the
Doing What Works and Science Progress projects at the Center for American Progress
About this series on U.S. science
and economic competitiveness
Te U.S. Congress in late 2010 asked the Department of Commerce to complete two studies as part
of the reauthorization of the America COMPETES Act. Te hrst, which was released on January 6th,
2012, at the Center for American Progress, focuses on U.S. competitiveness and innovation. Te sec-
ond, due to Congress in early 2013, oners specihc recommendations for developing a 10-year national
innovation and competitiveness strategy.
We applaud the commissioning of these reports but believe we cannot anord to wait that long to take
action. Tats why we convened in the spring of 2011 the group of experts listed on the following page.
We spent two days in wide-ranging discussion about the competitive strengths and weaknesses of our
nations scientihc endeavors and our economy, before seuling upon the topics that constitute the series
of reports we publish here. Each paper in the series looks at a dinerent pillar supporting U.S. science
and economic competitiveness in a globally competitive economy:
r
Rewiring the Federal Government for
Competitiveness
r
Economic Intelligence
r
Universities in Innovation Networks
r
Manufacturers in Innovation Networks
r
Building a Technically Skilled Workforce
r
Immigration for Innovation
Te end result, we believe, is a set of recommendations that the Obama administration and Congress
can adopt to help the United States retain its economic and innovation leadership and ensure that all
Americans have the opportunity to prosper and nourish now and well into the 21st century.
Many of our recommendations are sure to spark deep resistance in Washington, not least our proposal
to reform a number of federal agencies so that our government works more enectively and emciently in
the service of greater U.S. economic competiveness and innovation. Tis and other proposals are sure
to meet resistance on Capitol Hill, where dinerent congressional commiuees hold sway over diner-
ent federal agencies and their policy mandates. Tats why we open each of our reports with this one
overarching recommendation: Congress and President Obama should appoint a special commission to
recommend reforms that are packaged together for a single up-or-down vote in Congress. In this way,
thorough-going reform is assured.
Tis new commission may not adopt some of the proposals put forth in this series on science and
economic competitiveness. But we look forward to sharing our vision with policymakers as well as the
American people. President Obama gets it right when he says, To win the future, we will have to out-
innovate, out-educate, and out-build our competitor nations. We need to start now.
Coordinating editors for the series on U.S. science and economic competitiveness
Ed Paisley, Vice President, Editorial, American Progress
Gadi Dechter, Associate Director, Government Reform, Doing What Works
Sean Pool, Assistant Editor, Science Progress
American Progress taskforce on U.S. science and economic competitiveness
John Alic, science, technology, and economic policy
consultant and former stan member of the Congressional
Omce of Technology.
Joseph Bartlett, of counsel in Sullivan & Worcesters
corporate department and former undersecretary of
commerce at the U.S. Department of Commerce.
Maryann Feldman, S.K. Heninger distinguished chair in
public policy at the University of North Carolina, Chapel Hill.
Kate Gordon, VP for Energy Policy at the Center for
American Progress.
Michael Gurau, president, Clear Innovation Partners, a
venture capital investment hrm.
David Hart, director of the Center for Science and
Technology Policy at George Mason University School
of Public Policy.
Christopher Hill, professor of public policy and technol-
ogy at George Mason University School of Public Policy
and former vice provost for research at George Mason.
Neal Lane, senior fellow for science and technology
policy at Rice University and former advisor to the
president on science and technology policy.
Rachel Levinson, director of National Research Initiatives
at Arizona State University and former assistant director
for life sciences at the White House Omce of Science and
Technology Policy.
Jonathan Moreno, Editor-In-Chief of Science Progress
and Senior Fellow at the Center for American Progress.
Arti Rai, Elvin R. Lauy Professor of Law at Duke
University and former Administrator for External
Anairs, USPTO.
Andrew Reamer, research professor at the George
Washington University Institute of Public Policy and
non-resident senior fellow at the Brookings Institution.
RoseAnn B. Rosenthal, president and CEO, Ben
Franklin Technology Partners of Southeastern
Pennsylvania.
Jonathan Sallet, partner in the law hrm of OMelveny
& Myers LLP, Science Progress advisor, and former
director of the Omce of Policy and Strategic Planning
of the U.S. Department of Commerce.
Daniel Sarewiz, director of the Consortium for
Science, Policy, and Outcomes at Arizona State
University.
James Turner, Senior Counsel for Innovation &
Technology, and Director of Energy programs at the
Association of Public and Land-Grant Universities
and former professional stan and chief counsel for the
House Commiuee on Science and Technology.
William A. Wulf, professor of computer science at the
University of Virginia and former president of the
National Academy of Engineering.
Rewiring the
Federal Government
for Competitiveness
A New Cabinet Department for the 21st Century
Jonathan Sallet and Sean Pool January 2012
Contents 1 Introduction and summary
6 The proposal
8 A new common application program for trade, technology,
workforce training, and economic growth
13 Integrating existing, parallel regional networks
14 A hub of interagency coordination
16 Administration of the new department
17 Trade
21 Technology innovation
25 Economic growth
28 Workforce development
31 Conclusion: How to make this happen
33 Appendix A
36 Appendix B
41 Appendix C
44 Appendix D
50 Appendix E
56 About the authors and acknowledgements
57 Endnotes
1 Center for American Progress | Rewiring the Federal Government for Competitiveness
One fact and one imperative appear to be on a collision course. Federal spend-
ing will decrease in the coming years, yet the importance of boosting our
nations science and economic competitiveness cannot be overstated. How do
we reconcile the two?
Te traditional language used in such circumstances is to seek more bang for the
buck. But even thats not good enough anymore. Te federal budget has to deliver
the best for the buck, meshing the most emcient use of taxpayer resources with
the most enective structure. Tat is particularly true where the federal government
works with businesses, workers, communities, universities, and state and local
governments to grow our economy. Te historical evolution of federal functions
and the jurisdictional scope of congressional commiuees no longer justify the cur-
rent grab-bag organization of trade, technology, economic growth, and workforce
functions in our federal government.
Today, there are more than 3,000 federal assistance programs that provide grants,
loans, credit enhancements, and hnancing and technical assistance to hrms,
educational institutions, nonprohts, and local governments to pursue job-creating
activities related to science and economic competitiveness. Tese programs are
currently administered separately by the Economic Development Administration,
Employment and Training Administration, Small Business Administration,
Department of Housing and Urban Development, Department of Agriculture,
and a swath of other federal agencies. Beyond assistance programs, other federal
enorts that anect competitiveness-such as industry contracts, regulatory frame-
works, and existing management structures-are equally fragmented.
Tat is why we propose reorganizing the functions of the Department of
Commerce, moving signihcant portions of the current agency to other parts of
the executive branch, and bringing in competitiveness-relevant functions from
agencies outside the Department of Commerce. Te purpose: to create a new,
Introduction and summary
2 Center for American Progress | Rewiring the Federal Government for Competitiveness
focused Department of Competitiveness that integrates federal policy around four
interconnected areas of competitiveness:
r
Trade
r
Technology
r
Economic growth
r
Workforce development
Where federal enorts are focused on general-purpose outcomes, such as export
promotion and infrastructure technologies, we suggest that they be placed within
the new department to boost their enectiveness. Where federal enorts are spe-
cialized and mission-specihc but share overlapping constituencies with the new
departments work, we propose the creation of a new Common Application-a
single point of access to related federal programs-to ensure that programs also
work smoothly across governmental agencies in a manner that is most convenient
for their users, such as small businesses and universities.
It is a testament to American ingenuity and our talented people, within and out-
side government, that we get the outcomes that we do from the many disjointed
existing enorts. Our science successes range from the sequencing of the human
genome to social networking technologies, and our economic successes range
from our nations leading edge biosciences industries to the job-creating power of
new industries proliferating across the Internet. Yet the press of global competi-
tion requires that we do beuer-much beuer.
To its credit, the Obama administration, recognizing the disjointedness of these
many dinerent programs, has launched a series of initiatives to harness the best
of these enorts into a new national innovation and competitiveness strategy for
the 21st century.
1
President Obama has also issued a presidential memorandum
instructing agencies to assess possibilities for government reform for competive-
ness.
2
And already likeminded federal agencies with missions and money that
clearly overlap are teaming up to oner competitive grants to develop cuuing-edge
technologies and the workforce needed to commercialize them in energy em-
ciency, advanced nuclear technology, and solar-made fuels, just to name a few.
3

Tese enorts have another common purpose-to tap the comparative advantages
of key regional economies and scientihc centers of learning so that federal enorts
align with the unique competitive strengths of our nation-our bouom-up scien-
tihc development and economic engine.
It is a testament to
American ingenuity
that we get the
outcomes that
we do from the
many disjointed
existing eorts of
our governemnt.
Yet the press of
global competition
requires that we
do bettermuch
better.
3 Center for American Progress | Rewiring the Federal Government for Competitiveness
Tese competitive-grant programs oner policymakers some clear lessons on how
our federal government can play to the strengths of our scientists, our engineers,
our entrepreneurs, our hnanciers, our experienced workforce, and our eager
students at universities, community colleges, and high schools across the country.
Whats missing is a federal government structure that also plays to these strengths,
is institutionalized enectively, and delivers emcient and competitive federal fund-
ing to fuel the bouom-up economic capabilities of our economy.
Simply put, government structures from the 19th and 20th centuries no longer
conform to the demands of the 21st. Budget exigencies and economic-growth
objectives require that the economic-growth enorts of the federal government be
reconstituted so that our nation:
r
Makes the most emcient use of federal resources
r
Aligns most enectively with the businesses that create business plans and the
state and local governments that implement regional growth strategies
r
Encourages bouom-up growth strategies auuned to the unique needs of the
United States many regional economies
Tere has never been a U.S. cabinet-level agency like the one we propose. And
there has never been a time when it is needed more than it is today. Tis new
department would retain many of the existing functions of the Department of
Commerce centered on economic growth and business formation, but would add
to their critical mass while reducing redundancies across the federal government.
Bringing together key competitiveness functions around trade, technology, train-
ing, and economic growth under one umbrella will elevate the enectiveness and
the status of the newly created department within the government, and increase
the innuence of its secretary in the cabinet.
Today, national macroeconomic policies are managed by the White House,
the Department of the Treasury, and the independent Federal Reserve Board.
Mission-specihc economic policies hnd their home in agencies that include
the Departments of Education, Energy, Housing, Labor, and Defense, and the
National Institutes of Health. But economic growth is not simply a mauer of mac-
roeconomic policy plus the sum total of mission-specihc policies. Te creation
of businesses, the hiring and training of workers, and the growth of communities
stem as well from opportunities fostered by governments seeking to boost eco-
nomic growth in all sectors of the economy in all the dinerent parts of our nation.
There has never
been a U.S. cabinet-
level agency
like the one we
propose. And there
has never been
a time when it is
needed more than
it is today.
4 Center for American Progress | Rewiring the Federal Government for Competitiveness
Craning a new Department of Competitiveness would align federal programs
more enectively and emciently with the realities of our uniquely American com-
petitive strengths. Tat process can start right now, before legislation is passed,
with an executive order that, as explained below, improves the emciency of cur-
rent microeconomic policies. And that same goal would be the charge of the new
Department of Competitiveness.
Any plan to revamp the Department of Commerce must ultimately hnd a home
for the National Oceanic and Atmospheric Administration, or NOAA. A recom-
mendation about the most appropriate location for NOAA is beyond the scope of
this report. But regardless of its ultimate home within the bureaucratic landscape,
NOAA must maintain its structural integrity and hercely protect the preeminent
role of science in management of our nations oceanic and atmospheric resources.
Further, NOAA must ensure that its regulatory decisions remain free of undue
pressure from external sources. As the conversation about government reorgani-
zation continues to evolve, the Center for American Progresss environment and
ocean policy teams will be developing specihc recommendations about an appro-
priate structure for this agency.
Similarly, in addressing the issue of what to do with the federal governments vari-
ous economic statistics functions, we quickly found that the scope of the question
outgrew the space in this paper. One approach, as CAP suggested in its Focus on
Competitiveness paper, would be to bring the Census Bureau and the Bureau of
Economic Analysis together as part of a consolidated economic statistics agency.
We asked George Washington University research professor Andrew Reamer to
write a separate paper for this series titled Economic Intelligence. He makes a
number of practical, achievable recommendations to upgrade our national statis-
tics enorts for the 21st century.
Uniting these four focus areas-trade, general-purpose technology, place-based
economic growth, and workforce training-under one department would
increase emciency and enable the government to more enectively create and
implement a truly comprehensive strategy to foster American innovation and
economic competitiveness. Te result would be more and beuer job creation and
sustained economic growth.
We do not assert that the recommendations are unquestionably correct. In par-
ticular, we understand that questions of coordination can arise even if functions
are managed within the same department; there is no single, perfect solution. But
Uniting these four
focus areas
trade, technology,
workforce training,
and economic
growthunder
one department
would increase
eciency.
5 Center for American Progress | Rewiring the Federal Government for Competitiveness
we hope that this paper begins a real dialogue about what it would take to design
and implement a coherent national competitiveness strategy insulated from the
quadrennial shining of political fortunes.
In the main pages of this report, we detail our vision for this new Competitiveness
Department, including an overview of its new functions and an explanation of
which existing agencies, programs, omces, bureaus, and programs might be incor-
porated and why. We then examine how to beuer network and integrate other mis-
sion-specihc innovation programs in the departments of Defense and Energy, and
the National Institutes of Health, with the new work of the rewired Department of
Competitiveness. First, though, here is our proposal in a nutshell.
6 Center for American Progress | Rewiring the Federal Government for Competitiveness
The proposal


We suggest the creation of a new cabinet agency able to wield the many existing
tools of the federal government to beuer coordinate inherently interrelated trade,
technology, training, and economic growth programs in order to enhance the
competitive stance of our national economy. (see Diagram 1) Tis agency would
be built primarily around the existing structures of the Department of Commerce
and Small Business Administration, but would also assume relevant trade, tech-
nology, workforce training, and economic growth functions from other agencies
where such consolidation could help increase economic competitiveness.
Several key aspects of this proposal would strengthen existing federal enorts
around innovation and competitiveness:
r
Bringing together the hundreds of direct assistance programs that support inno-
vation through trade, technology, workforce training, and bouom-up economic
coordination under a Common Application
r
Integrating the existing parallel networks of brick and mortar and virtual federal
omces across the many regions of the United States
r
Acting as a hub of interagency coordination around particular mission-specihc
technology goals such as energy, healthcare, or defense innovation, and stream-
lining regulatory compliance procedures
Each of these main components of the proposal are discussed in more detail in the
following sections.

7 Center for American Progress | Rewiring the Federal Government for Competitiveness
DIAGRAM 1
New Department of Competitiveness overview

Department of
Competitiveness
Trade policy
and programs
General-purpose
tehnology
Economic
growth policy
and programs
Workforce
development policy
and programs
Across all of the four of these new functions within the Department of
Competitiveness, federal agencies inside and outside of the new department would:
r
Coordinate regulatory compliance
r
Make federal policy and management decisions
r
Operate loan, grant, export, technical, counseling, and other kinds of assistance
programs for small business, industry, and public entities
r
Directly contract with key private actors
All of these activities are currently undertaken by many departments with only ad hoc
coordination around the common goal of fostering the best possible environment
for innovation and economic competitiveness. Strategically managing these activities
together would address key gaps in governance, leading to several important benehts:
r
Increase emciency by bringing together related functions of government
r
Streamline interaction between businesses, universities, and other economic
actors and the federal omcials, regulators, and program omcers with whom
they must interact
r
Increase visibility and accessibility of existing grant, loan, technical, and other
assistance programs
r
Exploit potential synergies among businesses, universities, inventors, investors,
community lenders, and regional economic development organizations whose
economic goals share a regional and/or sectoral focus
r
Allow for more strategic use of existing and complementary policy tools in the
four interrelated domains anecting competitiveness: trade, technology, training,
and economic growth
Since innovation is among the most important long-term drivers of economic
growth and job creation, helping the private sector overcome barriers to innova-
8 Center for American Progress | Rewiring the Federal Government for Competitiveness
tion is an indispensable ingredient to promoting economic competitiveness.
4

Studies show that one of the hrst steps to fostering innovation is forming networks
of innovation participants, such as institutions of higher education, federal labora-
tories, small startup businesses, hnancial institutions, community and microenter-
prise development organizations, workforce training providers, industry, and local
and state governments. Contrary to the widespread belief that innovation comes
exclusively from scientists in laboratories, all of these dinerent players have a role
to play in innovation and job creation.
5
When these players act together, it makes
innovation possible in ways it wouldnt be acting separately.
A new cabinet agency able to manage the federal governments existing enorts to aid
all innovation participants in a coordinated and strategic way would go a long way
toward strengthening bouom-up economic growth, supporting small businesses, and
creating jobs. In the following sections, well turn brieny to each of the key compo-
nents of our proposal, and then discuss the rationale behind each of them in turn.
A new common application program for trade, technology,
workforce training, and economic growth
Te centerpiece of the new Department of Competitiveness would be a new common
application program for all four facets of the new departments responsibilities-trade,
technology, workforce training, and economic growth. A common application-not
unlike the common app for college admissions-would make the enort of applying
for several related programs at this new department far easier, faster, and less expensive.
Te current structure of federal programs is uncoordinated and lacks an overall stra-
tegic vision. (See Appendix A on page 34 for a list of many of the existing programs
that currently lack coordination.) To illustrate the problem, take the example of an
entrepreneur working to start a small business and create jobs around the com-
mercialization of a new idea in an underserved region. Today, such an entrepreneur
might be eligible for a dozen assistance programs spread across several dinerent
agencies. But hnding and applying to them all separately is prohibitively costly.
Furthermore, if the business plan involved the commercialization of university
research, that university too could be eligible for dinerent programs from entirely
separate agencies, for example through the Small Business Technology Transfer
grant program administered separately by 11 agencies. And, if the business
plan required a particular kind of workforce talent, local workforce training
Since innovation is
among the most
important long-
term drivers of
economic growth
and job creation,
helping the private
sector innovate is
indispensable to
competitiveness.
9 Center for American Progress | Rewiring the Federal Government for Competitiveness
organizations (such as community colleges or career counseling providers) would
be eligible for still separate assistance programs.
In short, the whole of these actors activities together is greater than the sum of
their activities apart.
Under current policy, there is no way to ensure all of the potential innovation
participants-the small business, the university lab, and the workforce training
provider-would have their bid for assistance reviewed jointly, despite the mutual
interdependence of their activities. Tats where the consolidation of a number of
these existing programs under a new Department of Competitiveness and acces-
sible via a Common Application program would add value.
Bringing together the various existing public hnancing tools used to support these
dinerent activities would help make the most of every dollar spent by each of
them. Replacing these existing siloed programs with one program would stream-
line the application process, provide nexibility, increase emciency of federal funds,
and create value through new synergies.
Te 2011 debut of the Economic Development Administrations newest Jobs and
Innovation Accelerator program, which encourages joint applications put together
by consortia of small businesses, training providers, and regional economic
councils, is a great example of how this can work.
6
By aligning the resources of 16
federal agencies and programs, the program made it easier for 20 public-private
consortia in underserved regions around the country to self-assemble around the
commercialization of new technologies. Te program, at a cost of $37 million, is
expected to leverage $69 million in private hnance and support 339 new busi-
nesses, 4,800 new jobs, and new skills training for 4,000 workers.
7
Despite a tight
application period of only 40 days from the funding announcement to the applica-
tion deadline, the program was vastly oversubscribed, with 121 applications for
only 20 winning consortia. Tis indicates the very real interest that exists for this
kind of synergistic and regionally focused federal streamlining.
Our proposal would systematize this thinking and take it to the next level by
replacing the dozens of separately managed programs operating in disparate policy
silos across a dozen agencies with one, streamlined system capable of bringing
to bear a full array of policy tools-grants, loans, contracts, credit enhancement,
technical assistance and others-on the challenges of bouom-up, regional innova-
tion, job creation, and growth. Figures 1 and 2 show how many separate programs
from dinerent agencies could be aligned to beuer support their unihed goals.
One of the rst
steps to fostering
innovation is
forming networks
of innovation
participants.
10 Center for American Progress | Rewiring the Federal Government for Competitiveness
EDA
SBA
NIST
ETA
USDA
NSF
HUD
Industrial
enterprise
Local/ state/
tribal
governments
Training
providers
Non-prot
development
organizations
Higher
education
Small
business
Construction/
infrastructure
project
developers
Financial
institutions
Common Application
Small
business
Industrial
enterprise
Higher
education
Non-prot
development
organizations
Local/ state/
tribal
governments
Construction/
infrastructure
project
developers
Training
providers
Financial
institutions
R
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g
io
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o
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Innovation and
economic growth
FIGURE 1
The status quo is chaotic, redundant, and uncoordinated
Existing federal funding is uncoordinated among many agencies and fails to recognize
the importance of connecting related economic competitiveness activities.
FIGURE 2
The Common Application Proposal helps innovation networks form
A Common Application would eliminate redundancy and unlock new
synergies by encouraging network formation, innovation, entrepreneurship
and economic competitiveness.
Source: Science Progress, using the
Catalog of Federal Domestic Assistance
11 Center for American Progress | Rewiring the Federal Government for Competitiveness
Instead of the alphabet soup of parallel and complimentary grant, loan, hnancing,
and assistance programs, one program would be beuer able to nexibly assess the
needs of regional applicants and deliver timely and targeted support to the wide array
of players who participate in innovation and job creation. A single, nexible common
application program operated by the Department of Competitiveness would address
all applications for all the various types of existing support through the lens of
network formation. It would have a big-picture view of existing and nascent innova-
tion networks in regions, and would be empowered to dispense project grants, loans,
credit enhancement, and programmatic services as needed to help connect innova-
tion players and bring regional innovation and job creation plans to life.
From the vast tables of uncoordinated funding streams in hgure 1 and in Appendix
A, the common app would serve several functions:
r
Research and development: Providing low-interest loans and loan guarantees to
small businesses for basic research into novel platform technologies.
r
Technology transfer support: Providing grants and loans to university-industry
partnerships centered on tech transfer and commercialization of promising
technologies.
r
Workforce development: Investing in technical education, training, and appren-
ticeship programs to help link regional workforce capabilities to local demand,
and to position workers to take advantage of emerging industries and occupa-
tions in their region.
r
Regional economic strategy development and implementation: Providing
project grants and technical assistance to self-assembled regional or industry
consortia or development organizations for design and implementation of
multi-stakeholder plans that fulhll necessary criteria.
r
Investment in underserved markets and communities: Leveraging private dol-
lars for small business in underserved or economically distressed communities
with increased coordination with larger regional economic development and
technology innovation strategies.
r
Export assistance: Providing loans, loan guarantees, insurance, and other
forms of hnancing assistance, as well as foreign market intelligence and trade
negotiations support to small and mid-sized businesses looking to tap foreign
demand by selling their products abroad.
Institutions of
higher education,
federal laboratories,
small startup
businesses, nancial
institutions,
community and
microenterprise
development
organizations,
workforce training
providers, industry,
and local and state
governmentsall
of these players
work together
to promote
innovation.
12 Center for American Progress | Rewiring the Federal Government for Competitiveness
r
Leverage for private finance: Managing and leveraging regional networks of local
hnanciers currently participating in the SBA microloan, Small Business Investment
Corporations, and Small Business Development Companies programs.
r
Support for incremental innovation: Helping industrial enterprise in under-
served regions, markets, or strategic industries to acquire necessary human,
physical, and hnancial capital necessary to upgrade, innovate, increase exports,
and stay cuuing-edge.
To be clear, the federal government already does these things, but not in a way that
strategically exploits the synergies between them. Using this extensive list of tools,
this Common App program would have tremendous nexibility to coordinate
hnancing assistance, loans, and project grants to tech startups, university-industry
partnerships, community development programs, and a wide array of small busi-
nesses, as well as larger self-organizing consortia, regional economic development
organizations, district organizations, microenterprise development organizations,
and the like. We suggest that implementation of the Common Application could
increase thoroughness, reduce the administrative burden on business, realize new
synergies, and foster new collaboration at the local, regional, and national level.
Having one program able to leverage dinerent tools ensures that every worthy
applicant receives the appropriate support to foster innovation, spur job creation,
and sustain economic growth. Combining related resources under one adminis-
trative roof benehts both the applicant (a streamlined and simple interface where
they can see and understand all of the opportunities available), and for the govern-
ment (increased proximity among related programs, opportunity for enhanced
strategic and regional coordination, elimination of redundancy).
Pooling diverse existing competitiveness funding opportunities would be more
emcient than the current system of siloed programs because of the reduced
administrative burden involved in leveraging multiple, complementary sources
of programmatic support. But more importantly, value will be added by foster-
ing new collaboration-both among currently uncoordinated federal programs
pursuing similar goals, and among the public and private sector players working to
catalyze innovation and growth in their regions.
We discuss how this program would work with the various other agency enorts
around the four pillars of trade, technology, training, and economic growth in the
main pages of the report.
A new cabinet
agency able to
manage the federal
governments
existing eorts to
aid all dierent
kinds of innovation
participants
strategically would
go a long way.
13 Center for American Progress | Rewiring the Federal Government for Competitiveness
Integrating existing, parallel regional networks
Another important reason to create a Department of Competitiveness is to make
more emcient the multiple and duplicative networks of local federal omces.
Te Small Business Administration, Economic Development Administration,
Manufacturing Extension Partnership, and Employment and Training
Administration, for example, each operate a network of regional and local omces.
8

Tese agencies dont even currently agree on how to divide the country into regions,
each slicing the nation dinerently. Te duplication of federal omces also means a
duplication of rent and overhead.
Source: Science Progress, using information
from the SBA, EDA, and ETA
Existing federal networks are uncoordinated
SBA, EDA, ETA each divide the country into different, uncoordinated regions.
Region I
Region II
Region III
Region IV
Region V
Region VI
Region I- Boston
ETA regions
SBA federal regions
US EDA regions
Region II- Philadelphia
Region III- Atlanta
Region IV- Dallas
Region V- Chicago
Region VI- San Francisco
Region VII
Region VIII
Region IX
Region X
Philadelphia
HQ
Seattle
Atlanta
Chicago
Austin
Denver
Seattle
5
HQ
Boston
Denver
Philadelphia
Chicago
Austin
Atlanta
San
Francisco
Dallas
Further, like the assistance programs they administer, there is relatively liule coor-
dination among these omces today, despite their linked missions. Besides beuer
integrating the delivery of technical assistance, grant-making, and other services
to businesses, universities, regional economic development councils, local govern-
ments, and work force training providers, merging the various regional omces could
improve bookkeeping and broaden available federal competitiveness services in
regions, while increasing coordination to make those services more enective.
14 Center for American Progress | Rewiring the Federal Government for Competitiveness
Integrating these existing parallel networks under the Department of
Competitiveness would make the Common App program more responsive to
local needs. Tis new, integrated network of competitiveness omces would be
tasked not only with distributing key business, assistance, training, and other ser-
vices to stakeholders in regions, but also with understanding the local dynamics of
regions economic needs and innovation assets, and leveraging that understanding
in craning the federal response.
A hub of interagency coordination
No reorganization plan will bring together every agency that works on trade or tech-
nology and aspects of economic growth. Many key technology agencies and bureaus
are technology-specihc and must remain separate. Several major cases in point:
r
Te Defense Advanced Research Projects Agency ($3 billion), or DARPA,
which coordinates competitive grants and contracts with private research and
industry to develop the cuuing-edge defense technology of the future.
9
r
Te Advanced Research Projects Agency-Energy, or ARPA-E ($300 million),
which, modeled aner DARPA, competitively allocates public funding for break-
through clean-energy technologies with the potential to reduce our dependence
on foreign energy and our impact on the global climate.
10

r
Omce of Energy Emciency and Renewable Energy ($2.2 billion), a Department
of Energy program that uses federal dollars to leverage private funds for clean-
energy research and innovation.
11
r
Omce of Science (roughly $5 billion), a Department of Energy program that
operates and manages many of the national laboratories such as the infamous Los
Alamos National Laboratory, where secret atomic physics research led to the cre-
ation of the atom bomb. Tese labs and their unique science equipment are used
today by universities and industry for basic and applied physical science research.
12
r
National Institute of Food and Agriculture ($1.5 billion), a Department of
Agriculture program that supports research, education, and extension programs in
the Land-Grant University System and other partner organizations through grant
making and research of current and future challenges facing American agriculture.
13
A Common
Application
could foster new
eciencies and
new collaboration
at the local,
regional, and
national level.
15 Center for American Progress | Rewiring the Federal Government for Competitiveness
r
Te National Institutes of Health ($28 billion), which funds and conducts
innovative medical research.
14

r
ARPA-ED ($50 million), a new proposal modeled aner DARPA and ARPA-E
that would pursue breakthrough developments in educational technology such as
student learning systems, support systems for educators, and educational tools.
15
Tese mission-specihc programs overlap with the mission, outcomes, and
capabilities of many of the agencies we do suggest be included in the new depart-
ment-they also beneht from operating close to their clients. Tis industry-
specihc focus makes these agencies beuer suited to close collaboration with the
Department of Competitiveness, rather than outright consolidation.
Nonetheless, the coordination of these enorts would be improved by the cre-
ation of the new Department of Competitiveness. Grant programs operated by
these agencies could and should be coordinated in some way with the Common
Application program we suggest in order to ensure that technology-driven inno-
vation investments are supported by matching investments in local workforce,
infrastructure, and exploration of export opportunities.
Tus, we suggest that the new Department of Competitiveness have a deputy sec-
retary in charge of managing the Common Application program as well as serving
as the chief of interagency technology coordination. As part of this responsibil-
ity, we propose that the second deputy secretary should oversee a cross-matrixed
organizational system that establishes Competitiveness Department omces in mis-
sion-driven agencies such as the ones above in order to facilitate the most emcient
cross-departmental coordination.
Having a new Department of Competitiveness joint omce nested in the man-
agement-level at each of these agencies will ensure that synergistic tools and
expertise are shared between these technology-specihc agencies and the other
technology, trade, and economic functions of the new DOC. While it is perhaps
a bold suggestion to cross-fertilize agencies with jointly run omces from other
agencies as a mauer of course, it is exactly this kind of cooperative and uncon-
ventional thinking that will keep our government and our economy innovative
and competitive in the 21st century.
A new Department
of Competitiveness
would become,
by virtue of its size
and cohesiveness
of its functions,
a stronger player
within the Cabinet
and federal
bureaucracy.
16 Center for American Progress | Rewiring the Federal Government for Competitiveness
Administration of the new department
A new Department of Competitiveness that integrates these functions would
become, by virtue of its size and cohesiveness of its functions, a stronger player
within the federal bureaucracy and in the presidents cabinet. We envision such
a department being headed by a secretary of competitiveness; by a hrst deputy
secretary for trade and competitiveness, who would also serve as the United States
Trade Representative; and by a second deputy secretary, who would act as COO
of the department and administrator of the Common Application program that
we describe below. Each of the four functions-trade, technology, economic
growth, and workforce development-would be headed by an undersecretary
who would oversee the programs. (see Diagram 2)

DIAGRAM 2
Function foremost
New Department of Competitiveness organizational chart
Secretary,
rst deputy secretary, USTR,
second deputy secretary,
common app program
Undersecretary
for trade
Undersecretary
for technology
Undersecretary
for economic
growth
Undersecretary
for workforce
development
At the secretarial level would be a policy and strategy omce tasked with craning
a biannual, overarching National Innovation and Competitiveness Strategy that
integrates the functions of each of the four pillars. In the following sections, we
will discuss these four pillars in turn, with auention to opportunities for enhanced
strategic coordination and how existing assistance programs would ht within a
Common Application program at the new department. We also give a few examples
of the kinds of programs that would be good candidates for inclusion, though we
recognize that more research is necessary to make concrete recommendations about
what programs should and should not be included within the new department.
See Appendices B through E for a more in-depth description of how the missions
and functions of existing agencies align with the goals of a unihed competitiveness
agenda in each of the four pillars.
17 Center for American Progress | Rewiring the Federal Government for Competitiveness
Trade


Te business of trade should be collected in one place-where trade negotiations,
trade policy, and export enorts can be combined. Tat is already the focus of the
Omce of the U.S. Trade Representative, or USTR, which has taken a leadership
role in achieving President Obamas goal of doubling exports in hve years.
Presently, there are seven or more federal bureaus and agencies with trade-related
missions acting separately, which together spend about $50 billion each year:
r
Omce of the United States Trade Representative
r
International Trade Administration
r
Department of States several trade bureaus
r
Bureau of Industry and Security
r
Export-Import Bank of the United States
r
U.S. Trade and Development Agency
r
Overseas Private Investment Corporation
Operating trade-related functions together with related programs in technol-
ogy, training, and economic growth will make it easier for the competitiveness
department to use trade as a tool to drive technology innovation, jobs growth,
and U.S. industrial competitiveness. A major priority of innovation-driven
economic growth is to ensure new technologies-and the businesses that make
them-have access to robust markets. Trade assistance helps hrms of all sizes
to compete for market share in global markets, access demand, sell more goods,
and hire more workers.
Building upon the interagency coordination already occurring through National
Export Initiative and the Omce of the USTR would allow a Secretary of
Competitiveness to enectively manage U.S. trade policy as a tool in national inno-
vation and competitiveness strategy. Bringing together the currently dispersed
trade functions across government into one place will also eliminate redundancy
and allow for more strategic utilization of existing trade tools. (see Diagram 3)
18 Center for American Progress | Rewiring the Federal Government for Competitiveness
DIAGRAM 3
Organizing for exports
The new Office of the Undersecretary for Trade

Undersecretary for
trade and export expansion
Commercial
Diplomacy
Export nance assistance
and other industry-facing services
(part of the Common App)
Trade law
negotiation and
enforcement
Trade is a tremendously important aspect of our national economy. In 2010 the
United States exported $1.3 trillion worth of goods-including commodities,
manufactured products, technology, and services-and imported $1.9 trillion.
While a large part of this $600 billion trade dehcit is driven by imports of fossil
fuels, and nondurable manufactured goods such as clothing, foods, and com-
modities, more troubling is the recent dehcit in high-tech trade. While U.S.
industries once dominated global high-tech markets, since 1999, U.S. businesses
have bought more high-tech goods than they have sold. Today the dehcit reduces
annual GDP by 0.6 percent per year, and the dehcit is only geuing worse.
As our colleagues Christian Weller and Luke Reidenbach noted in their 2011
report, the quantity and quality of U.S. trade relationships in high-tech sectors
have profound implications on long-term economic growth, jobs, wages, and stan-
dards of living. A more strategic approach to high-tech export expansion is needed
to reverse the recent declines of U.S. trade in these industries.
16

An integrated Department of Competitiveness could help boost the success of
these critical U.S. industries through a shared focus on trade, technology, training,
and economic growth. Under current law, commercial diplomacy, bilateral and
multilateral trade negotiations, trade dispute arbitration and enforcement, trade
counseling, market intelligence, export hnance assistance services, and technical
standards seuing are managed as separate, or even unrelated, activities.
Managing them jointly as part of a strategic competitiveness plan would recognize
these enorts for what they are: useful tools to ensure U.S. businesses compete on
a level playing held in the global marketplace. From this perspective, the trade-
19 Center for American Progress | Rewiring the Federal Government for Competitiveness
based competitiveness tools that currently exist in the federal government can be
roughly divided into three broad categories:
r
Trade negotiations
r
Overseas enterprise assistance
r
Enforcement
Beuer coordinating these three interrelated domains-currently scauered among
the organizations listed above-could yield signihcant new synergies.
So lets look at a brief example of industry-facing trade services could be beuer
utilized to promote domestic success.
When U.S. companies export goods and services abroad, the result is new jobs.
Tere are presently four dinerent agencies wholly dedicated to providing domestic
small businesses and industry with trade assistance services such as trade counsel-
ing, market intelligence, and export hnancing and technical assistance: the Export-
Import Bank, the Overseas Private Investment Corporation, the U.S. Trade and
Development Agency, and the International Trade Administration. Whats more,
the Economic Development Administration and Small Business Administration,
though not wholly concerned with trade, also operate programs that provide
duplicative industry-facing trade services.
Why should exporters or would-be exporters have to look to four or even six dif-
ferent agencies to hnd the loans, loan guarantees, and other hnancing assistance
and technical assistance they need to get access to international market demand
for their products? Eliminating this redundancy by making these tools accessible
through a Common Application makes sense. It would make it easier for busi-
nesses and manufacturers to get the help they need to access foreign markets and
bring in valuable and job-creating commercial export agreements.
Integrating the management of bilateral and multilateral trade negotiation and
enforcement would be helpful as well. Currently such work is undertaken by vari-
ous bureaus at the State Department, at the White House omce of the USTR, and
the International Trade Administration. Policies such as foreign direct investment
rules, intellectual property rights, and market access all play signihcant roles in
determining the success or failure of U.S. high-tech trade enorts and would thus
be valuable tools in the implementation of a national competitiveness strategy.
Allowing innovative
manufacturers
to access trade,
technology, and
training services
together through
a single point of
contact would
make innovation
and job creation
easier across all
of the nations
regions.
20 Center for American Progress | Rewiring the Federal Government for Competitiveness
Besides streamlining government interaction for businesses, bringing industry-fac-
ing services together with trade negotiation and enforcement also would provide
beuer insight to our commercial diplomacy enorts.
A word on the USTR is appropriate. Some worry that the enectiveness of our
trade negotiations will be decreased if the function of the USTR is moved out
of the Executive Omce of the President. Te concern is fair, but we think that
a creative approach can be found that marries the greater emciency in govern-
mental operations with the greatest emciency for our negotiators. It is true that
other critical elements of governmental operations such as those housed in
the State Department and Defense Department are not situated in the White
House, and we think that the same can be accomplished here. Tat is why, for
example, we propose that the new cabinet department include both a Secretary
of Competitiveness and a Deputy Secretary who, with the full conhdence of the
President and the Secretary, would exercise the traditional authority of the USTR.
Jointly managing trade services, commercial diplomacy, and enforcement as
part of a national competitiveness strategy that also includes technology, train-
ing, and regional economic coordination services would allow for these services
to make an even bigger impact. All over the country today there are small and
medium innovative manufacturers and technology startups working with the
federal technology programs, such as the Manufacturing Extension Partnership, to
improve supply chains and position their technology in global innovation systems.
Technology exporters are also working with local economic development boards,
community-planning councils, and other vehicles for regional economic coordi-
nation to support their enorts to create domestic jobs through export expansion.
Tey are also working with local governments, community colleges, and other
workforce development organizations to cultivate the talent they need to make
the most of job-creating export opportunities.
Allowing innovative, job-creating manufacturers to access trade services
together through a single point of contact with the technology, workforce, and
local economic coordination services that also help determine success would
make innovation and job creation easier across all of the nations regions. For
more information about the existing programs eligible for inclusion in such a
proposal, please see Appendix B.
Technologythe
production of
new and better
products, and faster
and cheaper ways
of making them
is what has always
been at the heart
of Americas long-
term economic
growth.
21 Center for American Progress | Rewiring the Federal Government for Competitiveness
Technology innovation


Americans have long looked at science as a public good, and thus have established
for decades the precedent of public investment in basic science research. But more
recently economists point to the spillover enects and public-good benehts of not
just basic science but also technology innovation more broadly-including the
benehts of technology that is privately held.
Indeed, technology-the production of new and beuer products, and faster and
cheaper ways of making them-is what has always been at the heart of Americas
long-term economic growth.
17
And even in the near term, innovation has a direct
impact on jobs and wages. According to a Department of Commerce report, job
wages grew in innovation-intensive industries at two-and-a-half times the national
average in recent years.
18
Te important role of technology to jobs and the economy necessitates a more
concerted federal strategy to promote innovation-a strategy that builds on our
nations intrinsic strengths of research and development, entrepreneurialism,
opportunity, and place-based economic development. Publicly supported innova-
tion can sensibly be broken down into three categories:
r
Basic experimental science research
r
Applied research and development of mission-specihc technologies to solve
specihc challenges in energy, health, defense, or other helds
r
General-purpose platform technologies such as manufacturing, information
technology, and advanced infrastructure that underpin the development of
many or all industries
Basic science research solves the market failure caused by underinvestment in pre-
competitive research. Mission-specihc technologies at the applied stage include
such endeavors as clean energy and health information technology-enorts that
have a core focus on a market failure.
22 Center for American Progress | Rewiring the Federal Government for Competitiveness
Te federal government, however, has no concentrated focus on R&D for plat-
form technologies-those technologies that act as the infrastructure for the
creation of a wide swath of other innovation advancements, including mission-
specihc tasks. Yet the most important platform technology of our time, the
Internet, was spawned and developed largely through public-sector support.
Tere are currently many government functions that provide services in support
of the research, development, and commercialization of science and technology:
r
National Institute of Standards and Technology (Department of Commerce)
r
Manufacturing Extension Partnership program (Department of Commerce)
r
Small Business Innovation Research Program (Small Business Administration)
r
National Technical Information Service (Department of Commerce)
r
Patent and Trademark Omce (Department of Commerce)
Bringing together the industry-facing services of these many agencies and pro-
grams under a Common Application would streamline access. And managing the
portfolio of general-purpose and public-good technology innovation programs
geared toward serving businesses and universities together under an innovation-
policy omce at the undersecretary level would be of great assistance to the White
House, its Omcer of Science and Technology Policy, and to our national innova-
tion ecosystem. (see Diagram 4)
DIAGRAM 4
Organizing for innovation
The new Office of the Undersecretary for Technology Innovation
Undersecretary for
technology innovation
Standards and
technological information
and coordination services
Technology commercialization
assistance and services for rms and
universities (including the Common App)
Patent and
Trademark Oce
Partnerships between universities and entrepreneurs are today driving technology
innovation in regions across the country. Te hrst time when these entrepreneurs
and researchers interact with the federal government will onen be when they
apply for a patent. Unfortunately, under current law patents can take three years
23 Center for American Progress | Rewiring the Federal Government for Competitiveness
or more to obtain. Tis is a drag on the innovation pipeline. Tough the America
Invents Act of 2011 will help reduce patent pendency, the U.S. Patent and
Trademark Omce still does not have the nexibility it needs to serve the interests
of these innovation players to the best of its ability. Further, there is no process in
place to connect patent applicants or new patent holders with the wide range of
other federal services available to help them bring their technologies to market.
Coordinating the patent process more closely with other federal technology
services through the Department of Competitiveness can help solve this problem.
When a patent is issued, in addition to hling it away in the federal patent registry,
why not also notify the patent holder of small business acceleration programs for
which he or she might be eligible? Patents are issued to businesses both large and
small, but federal programs targeted toward smaller hrms can be more enec-
tively integrated. Te Small Business Innovation Research and Small Business
Technology Transfer programs, for example, are two programs totalling $2 billion
that help small technology hrms to get the startup capital they need to build busi-
ness plans around the commercialization of new technology.
But small technology hrms need more than just access to capital to ensure busi-
ness success and job creation. Tey also need locally available workers with
specialized skills, access to foreign and domestic markets in which to sell their
products and services, and a say in regional economic and infrastructure planning.
As these small technology startup hrms grow, they may also need assistance in the
scale up of manufacturing, and for this they will turn to the NISTs Manufacturing
Extension Program. Te MEP program operates held omces in every state that
provide U.S. manufacturing companies with a wide array of technical services to
help them become competitive.
Te technology startup company may also need help hnding a market for its prod-
uct. But small hrms rarely have the resources needed to research potential market
opportunities in every country around the world, so for this, it would again need
to go to a dinerent agency-one of several discussed in the preceding section.
Finally, as the small technology hrm begins to grow, invest in manufacturing, and
increase its market penetration, it will need a locally available supply of skilled
workers, which even in the depths of recession, can sometime be hard to hnd in very
specialized industries. Beuer matching local talent to industry demand is subject of
another paper from our series Building a Technically Skilled Workforce, but the
hrm may not have a relationship with local workforce development providers.
The important
role of technology
to jobs and
the economy
necessitates a
more concerted
federal strategy
to promote
innovation.
24 Center for American Progress | Rewiring the Federal Government for Competitiveness
Bringing together the management of all of these federal services would not
only streamline startup company access to the technology and trade-related
services it needs, but also would help it beuer coordinate its needs with those
of the relevant players such as community colleges and local economic develop-
ment boards in its region.
Small- and medium-sized hrms working on the cuuing edge of technology innova-
tion make up a large percentage of overall U.S. exports-more than 30 percent,
according to the Small Business Exporters Association of the United States.
Tousands of jobs and the path of future industrial development depend on their
success. Coordinating the many dinerent ways in which federal programs can
support their success, and the success of their local and regional partners through
a strategic competitiveness strategy, will help these hrms get access to the human,
physical, and hnancial capital they need to stay cuuing edge and create jobs.
In Appendices A and C, we discuss in detail a number of technology programs
administered by not only NIST and MEP, but also the Small Business
Administration, U.S. Department of Agriculture, the Employment and Training
Administration, and others that are candidates for inclusion in the new department
in order to beuer promote technology innovation through a shared focus on not
only technology, but also on training, trade, and regional economic coordination.
25 Center for American Progress | Rewiring the Federal Government for Competitiveness
Economic growth


Our nation is doued with communities full of promise, talent, and potential. But a
lack of expertise, hnancial capital, and conhdence prevents many of these communi-
ties from maximizing their potential. Strategically deployed assistance to regional
development organizations, microenterprise development funds, community
development councils, and venture and angel investors looking to deliver risk capital
to entrepreneurs with promising ideas can go a long way in helping communities
large and small achieve their full potential. Ensuring all of our nations communities
have something to add to the national economy is key to sustaining jobs, enlivening
regions, and promoting national competitiveness. Tats why economic growth is
the third portfolio of our new Department of Competitiveness.
Today the federal government has a range of programs that help communities and
small business owners with vision, but without needed resources or expertise, to
achieve their goals. Moreover, support for these bouom-up regional economic
coordination activities are scauered across a range of programs administered by
many agencies, including:
r
Te Economic Development Administration (Department of Commerce)
r
Te Small Business Administration
r
Te Minority Business Development Administration (Department of Commerce)
r
Te Center for Veterans Enterprise (Department of Veterans Anairs)
r
Te Department of Rural Development (Department of Agriculture)
19
r
Te National Telecommunications and Information Administration (Department
of Commerce) and the Broadband Initiative Program (Department of Agriculture)
r
Te Community Planning and Development (Housing and Urban Development)
20
r
Omce of Economic Adjustment (Department of Defense
21
A quick search though the governments Catalogue of Federal Domestic Assistance
database will reveal thousands of individual programs. Small businesses, local gov-
ernments, or regionally focused nonproht economic development organizations may
be eligible for several such programs, and other stakeholders in their success may be
26 Center for American Progress | Rewiring the Federal Government for Competitiveness
eligible as well, but applying separately to the plethora of assistance possibilities is
costly and time consuming. Most federal programs are poorly advertised, and many
eligible communities and small businesses may not even know they are eligible.
Structural reform would be a beuer approach. Te goals here are twofold: hrst, to
improve the emciency of federal enorts by combining programs and their adminis-
tration and, second, to replace old-form notions of economic development with
a sophisticated, bouom-up, and innovation-driven approach. Outdated notions of
economic development paint a picture of bridges to nowhere and bureaucratic
entanglement, but new-school enorts to drive bouom-up, innovation-driven eco-
nomic growth that cuts through red tape and empowers communities to achieve their
own goals has already seen success in the Obama administration (see CAPs paper on
the Jobs and Innovation Accelerator for an assessment of the most recent enorts).
22

For this reason, we believe that the unit should be tasked with promoting economic
growth in addition to the more traditional economic development. (see Diagram 5)
DIAGRAM 5
Organizing for economic growth
The new Office of the Undersecretary for Economic Growth
Undersecretary for
economic growth
Common App assistance,
services, and support
for small businesses
Technical assistance for regional economic
strategy development and implementation
for local economic development councils,
regional innovation consortia, local
governments (part of the Common App)
Traditional public
works infrastructure
nance
A large and growing body of evidence shows that the United States does not have
one homogenous national economy but rather a patchwork of heterogeneous
regional economies, each with a unique portfolio of infrastructural, human capital,
institutional, and economic assets. Furthermore, studies show that the geographic
agglomeration of these assets and their associated business activity correlates with
enhanced, even exponentially improved, economic outcomes.
Presently, the Economic Development Administration supports local business
ecosystems that take advantage of the unique characteristics of their region to
create the conditions for private sector jobs growth. Te EDA provides a range
of services including technical assistance, strategy development, revolving loan
27 Center for American Progress | Rewiring the Federal Government for Competitiveness
fund capitalization, trade adjustment assistance and public works investments to
support these enorts. At the same time, the Small Business Administration today
maintains a network of approved lenders, small-business development centers,
and small-business investment companies designed to give small businesses in
economically underserved regions a leg up. Given that a regions economic success
is determined ultimately by the success of the success of private-sector businesses
in the region, beuer coordination between these two related activities is a must.
Take for example the EDAs recent Jobs and Innovation Accelerator challenge grant
program, which provided targeted $1.8 million grants to 20 regions across the coun-
try to coordinate workforce, small business, and regional economic planning enorts
around targeted technology-driven growth enorts in high-growth sectors. Under
the current system, small businesses in those regions applying for support from SBA
programs-even those in the same industrial sector identihed by the EDA pro-
gram-are considered separately and without any auention to potential workforce,
supply chain, or information-sharing synergies. Businesses not involved at the initial
time of application for the EDAs regional jobs accelerator are enectively locked out
of potentially lucrative opportunities for collaboration.
But under a single department, innovation cluster activities-and the small busi-
ness, technology research, and workforce elements of which they are comprised-
could be made more dynamic. Under a Common Application, if a new startup
came along looking to hll a critical supply chain gap in an EDA-supported regional
economic growth plan, that hrm would be considered for what it was: a unique
piece of a larger jobs-and-innovation puzzle, rather than as just another small com-
pany looking for assistance. Currently, that hrms application for assistance from
the SBA, USDA, MEP, or another federal program would not be informed by
the role the hrms program might play in the larger EDA-funded regional innova-
tion plan. Te two may not even be aware of each others existence. By linking
that hrms objectives with those of its regional partners, the Common App would
encourage potentially productive collaboration.
Even beuer, because it would also be able to utilize trade assistance programs
alongside other regional economic growth, small business, and workforce develop-
ment programs, a cross-departmental Common Application would be able bring
together all of tools needed to ensure regional economic success. Te Departments
of Agriculture and Housing and Urban Development operate programs that utilize
very similar policy tools, but with a specihc focus on rural and urban regions specih-
cally. In Appendix D we examine the considerations of including these and other
programs within a Department of Competitiveness in more detail.
Under a single
department,
innovation cluster
activities
and their small
business,
technology
research, and
workforce
elementscould
be made more
dynamic.
28 Center for American Progress | Rewiring the Federal Government for Competitiveness
Workforce development


In the end it is workers who drive innovation, economic development, and
competitiveness-be it by working in labs, on assembly lines, in boardrooms, or
in storefronts. Te hrms that research, design, market, build, manufacture, repair,
and service the products that drive economic growth cannot exist, much less stay
cuuing-edge, without skilled, creative, and capable workers. Competitive regional
economies depend upon the availability of a qualihed workforce, and the talent of
Americas workers has long been a reason for companies to locate here.
Tere are several federal enorts already in existence that support state and local
enorts to enhance the quality of their talent pool. Paramount among them are:
r
Te Employment and Training Administration (Department of Labor)
r
Te Omce of Vocational and Adult Education (Department of Education)
r
Multiple small programs in the National Science Foundation.
Te new Department of Competitiveness should combine existing enorts in the
departments of Education and Labor and, to a lesser extent, the National Science
Foundation, to pursue the goal of universal auainment of an associates degree
or industry-recognized credential. At the same time, it should focus on beuer
linking existing workforce investment dollars to the rapidly changing demands
of industries and regions, while enhancing service delivery to help job seekers
trying to keep up. By linking these enorts under one roof, similar programs can be
combined to support more robust missions. Linking the goals of workforce policy
together with those of economic development and technology will ensure the
American workforce can meet the needs of tomorrows high-growth industries.
Enorts to beuer integrate the workforce development system with the economic
development programs are not new.
23
Te High Growth Job Training Initiative
and the Community-Based Job Training program, for example, were interagency
enorts designed to encourage market-driven collaboration between private indus-
try and relevant public entities involved in workforce development.
24
Before that,
29 Center for American Progress | Rewiring the Federal Government for Competitiveness
the WIRED initiative sought to link leverage and align region-based workforce
and economic development strategies.
25

Most recently the EDAs Jobs and Innovation Accelerator Challenge epitomized the
high level of interagency coordination required to successfully develop competitive
regional economies. Te Accelerator brings together support from 13 agencies and
funding from three (EDAs Economic Adjustment Assistance Program, DOLs H-1B
Technology Skills Training Grant, and SBAs 7(j) technical assistance program).
26
By
integrating current workforce development initiatives that tie in closely with globally
competitive economic strategies, the new Department of Competitiveness Omce of
the Undersecretary of Workforce Development will be able to foster the same level
of coordination. (see Diagram 6)
DIAGRAM 6
Organizing for workforce development
The new Office of the Undersecretary for Workforce Development
Undersecretary for
workforce development
Continuous career
counseling and technical
training centers
(part of the Common App)
Technical education and
college credit coordination
for community colleges
(part of the Common App)
Industry-education
interface via ETA
apprenticeship programs
Our nation faces a widening gap in critical science, technology, engineering, and
math skills at all educational levels-from elementary to postsecondary. Increasingly
many observers note that our national education and workforce training pipelines
are out of sync with the dynamic needs of increasingly knowledge-driven global
industries. Fixing this problem will require not only a substantial reworking of our
K-12 educational system to improve student achievemnet in science, technology,
engineering, and math, but also much closer auention to ensuring workers have the
training they need to hll the jobs of Americas cuuing edge hrms.
Our colleagues Louis Soares and Steven Steigleder, in their paper Buidling a
Technically Skilled Workforce, present several concrete and pragmatic steps for
reorganizing the national workforce development system for competitiveness. We
wont repeat their work here, but a few points about the importance of integrat-
ing management of workforce development programs with technology, trade, and
local economic development follow.
30 Center for American Progress | Rewiring the Federal Government for Competitiveness
Tere are three important workforce functions that would be enhanced through
strategic coordination with the other Department of Competitiveness functions:
technical training, continuous career counseling, and industry-education collabora-
tion. Te Department of Labor already operates a network of One-Stop career
centers in communities across the country. Te nationwide network of Career
One-Stop Centers provides basic labor market information, job search assistance,
skill assessments, and limited career counseling to millions of workers every year.
As the economy becomes increasingly knowledge-based, the career counseling
system needs to help workers move away from short-term job-placement services
and toward long-term career development trajectories. Situating these and other
workforce programs together with the other community-focused functions of
the new department will help related enorts of job training, job placement, career
counseling, and technical education become more responsive to the demands of
local and national industry.
Te Department of Labors Trade Adjustment Assistance program illustrates the
profound relationship between trade, technology, training, and regional economic
vitality. Changing trade relationships-whether caused by naturally evolving mar-
ket dynamics or commercial diplomacy-have a profound enect on local industry,
employment, and workforce needs. Te Trade Adjustment Assistance program
seeks to mitigate some of the wost enects of trade on communities by puuing $1.8
billion of federal funding to helping millions of Americans whose jobs are anected
by changes in international trade pauerns.
27
It provides a path of employment
growth in each state through direct hnancial assistance, skills training, resources,
and other support to help trade-anected individuals become re-employed.
28

But under current law, this program delivers training and resources to regions
without careful regard to existing regional innovation and economic development
strategies. In so doing it deprives workers and training providers from the oppor-
tunity to strategically develop skills and curricula geared toward the emerging
industries most locally relevant to their region.
Beuer coordinating not just these enorts, but also all workforce training programs
with regional economic development and innovation cluster enorts though the
new departments national competitiveness strategy would help ensure that
workforce training, career counseling, and technical training are tailored to unique
regional needs and to hll important industrial niches.
As the economy
becomes
increasingly
knowledge-based,
programs must
help workers
move away from
short-term job-
placement services
and toward
long-term career
development
trajectories.
31 Center for American Progress | Rewiring the Federal Government for Competitiveness
Conclusion:
How to make this happen


An act of Congress would be needed for such a substantial reorganization as the
one we suggest in the forward of this series on page ii, but the president already has
considerable authority to set this agenda in motion. President Obama has already
issued a presidential memorandum instructing agencies to begin assessing oppor-
tunities for consolidation and increased collaboration, and on January 13, 2012,
asked Congress for the authority to take the next step.
29
As this process unfolds
the president should also issue an executive order that creates interagency working
groups in trade, technology, workforce training, and economic growth to ensure
close coordination of programmatic enorts. Tese working groups could begin to
do the detailed work of designing the coordination we advocate for in broad strokes
here, and present its hndings to Congress for a single up or down vote.
In an aggressive scenario, these working groups could be empowered with sub-
stantial authority so as to constitute a sort of virtual agency that fulhlls many of
the goals we lay out. Tis step would ensure that applications for governmental
support can be handled through one-stop shopping that matches enorts at the
federal level to the competitive advantages of the nations regional economies.
In essence, the Obama administration should do everything in its power to estab-
lish the Common Application competitiveness assistance program and the func-
tional working relationships that the newly created department would need even if
Congress refused to give formal reorganization authority. Te executive order would
mandate that the various agencies work together formally, institutionalizing some of
the successful experiments in competitiveness-oriented thinking already in operation.
Implementing this virtual agency with executive authority would test the functions
of various agencies working together, and identify areas of increased synergy and
decreased redundancy that we havent even considered in this paper. Tis would pave
the way for Congress to enact a law to formally create the new department.
A hnal point: It may not make sense to put all of these agencies and bureaus into
one department, or it might make sense to implement shared authority between
32 Center for American Progress | Rewiring the Federal Government for Competitiveness
some of these existing bureaus and the new Department of Competitiveness.
Many of the recommendations we suggest for consideration in this thought
experiment could turn out to be of liule or negative value. Tat is why testing
them out with an executive order that mandates strong interagency coordina-
tion along the lines we sketch here would be instructive. Perhaps some of these
agencies best practices can be studied and replicated by others without the need
for Congressional action. Proceeding in this iterative fashion would enable the
Obama administration to answer the many inevitable questions from Congress
about the strengths and weaknesses of this new approach.
Whats not in doubt is the need to engage in this kind of government reform. For
American hrms, workers, and our economy to compete globally in the 21st cen-
tury, we must rewire our government infrastructure to more enectively focus on
innovation and competitiveness. While the strategy proposed in this document
represents a hrst stab at a hugely complex undertaking, the proposal to streamline
and integrate the implementation of federal programs around these four intrinsi-
cally linked areas of trade, technology, economic development, and workforce
development is a necessary hrst step.
33 Center for American Progress | Rewiring the Federal Government for Competitiveness
Appendix A
Existing programs for strategic management under the Common Application
Te following table lists several dozen federal programs spread across the four
spheres of trade, technology, training, and economic growth identihed as potential
candidates for integration through the Common Application program.
TABLE 1
Program Agency Funding level and type* Purpose Recipients
Small Business Innovation
Research and Small
Business Technology
Transfer programs
SBA, in
coordina-
tion with
11 others
$2 billion in grants, sourced
from multiple agencies
Leverages resources from 11 agencies to for
demonstration, translational research, and
technology commercialization.
30
Start-up small busi-
nesses, and partnerships
between universities
and industry
Technology Innovation
Program
NIST
$75 million in grants
requested, currently
funded at $44 million
Leverages private capital for high-risk,
high-reward research in areas of critical
national need.
31
Business and university
joint ventures
Measurement Science
and Engineering
Research Grants
NIST $27 million in grants
Translational research in the elds of
materials measurement, engineering, re
research, information technology, nanoscale
technology, and others.
32
Local, state, or tribal
governments, and
higher education, non-
prot, or commercial
organizations
7(a), 7(j) loans and grants SBA
$165.4 million in loan
insurance/guarantees
underwrites $17 billion in
private investment
Leverages private loans to support export
expansion, rural operations, construction, short-
term working capital, and veterans business
enterprise assistance.
33
Small businesses
Small Business
Development Centers
SBA
$116 million in project
grants, specialized,
advisory, and counseling
services
Provide one-stop guidance, counseling, and
entrepreneurship assistance.
34
Small/start-up busi-
nesses, not-for-prot
business development
centers, higher education
Small Business
Investment Companies
SBA
$3 billion in direct loans,
loan insurance/guarantees,
advisory services and
counseling
Leverages private venture capital in support of
small, high-growth companies at the regional
level
Start-up/small busi-
nesses via regional
nancial institutions
General Research and
Technology Activity
HUD
$50 million in
project grants
Research, demonstration, and program evalu-
ation in the three areas of housing, energy
eciency, and community development.
35
Commercial, nonprot,
higher ed, or public
research institutions
Industrial Innovation
Partnership, Accelerating
Innovation Research, and
Academic Liaison with
Industry programs
NSF
$180 million in
project grants and
specialized services
Translational research /tech commercializa-
tion in areas of national industrial importance,
operation of Industry/University Cooperative
Research Centers.
36
Commercial, nonprot,
higher ed, or public
research institutions,
together or separately
Technical Assistance EDA
$9.8 million in
project grants
Conduct feasibility studies and provide opera-
tional assistance to formulate and implement
regional economic development plans
Universities and
nonprots
34 Center for American Progress | Rewiring the Federal Government for Competitiveness
Partnership Planning EDA
$31 million in
project grants
Development of regional economic
development plans
Local and tribal
governments
Research and Evaluation EDA
$1.5 million in
project grants
Research into cutting edge economic
development practices.
Local, tribal, state
governments, higher
education or not-for-
prot research institu-
tions working with gov
Economic Adjustment
Assistance
EDA
$38.6 million in
project grants
Regional economic strategy development,
infrastructure construction, and revolving loan
capitalization for technical, planning and public
works in economically distressed regions
Local, tribal, state gov-
ernments, higher educa-
tion or not-for-prot
research institutions
working with gov
Sustainable Economic
Development Program
EDA
$25 million in
project grants
Invests in clean energy, energy eciency, green
building, recycling, and green manufacture
projects in underserved regions
Local, tribal, state gov-
ernments, not-for-prot
district organizations
21st century Innovation
Infrastructure
EDA
$158 million in
project grants
Supports construction, expansion, or upgrade
of public infrastructure
Local, tribal, state gov-
ernments, not-for-prot
district organizations
Trade Adjustment
Assistance
EDA
$15.8 million in
cooperative agreements
and project grants
Supports a network of trade adjustment centers
that help small and medium-size rms and
communities adapt to changing global trade
conditions
Firms and local govern-
ments or community
organizations
SBA Microloan and
formula grant programs
SBA
$25 million and $13 million
in microloan credit subsidy
and formula grants
Leverages private capital for approved small
businesses to use as working capital, for
technical assistance, or the purchase of
equipment or inventory
Small business via
state governments
and approved private
lenders
Certied Development
Companies / 504 loans
SBA
$7.5 billion in
lending authority
Leverages private capital for approved small
businesses to acquire working capital, make
equipment purchases, or expand exports.
37

Small businesses via
approved private
lenders
8 (a) Business
Development Program
SBA
$52 million in
specialized services
Services, guidance, counseling for entrepre-
neurs from disadvantaged backgrounds
Businesses owned/
operated by socially or
economically disadvan-
taged individuals
Program for Investment in
Microenterprise (PRIME)
SBA
$13 million in project
grants and loan guaran-
tees/insurance authority
Technical assistance, capacity building,
research and development
Nonprot microen-
terprise development
organizations that are
accountable to local
communities or Indian
tribes
Rural Business
Enterprise grants
and loans programs
USDA
$40 million in
project grants
Create, expand, or operate rural distance
learning networks to provide educational or
job training instruction in response to market
needs; develop, construct, or acquire land,
buildings, plants, equipment; renancing;
establishment of revolving loan funds.
38
Public bodies and
nonprot development
organizations serving
rural regions
Rural Microentrepreneur
Assistance Program
USDA $31 million in direct loans
Loans to provide continuing technical and
nancial assistance related to the successful
operation of rural microenterprises
Nonprot or tribal
microenterprise
development organiza-
tions, institutions of
higher education
Program Agency Funding level and type Purpose Recipients
35 Center for American Progress | Rewiring the Federal Government for Competitiveness
Business and Industry
Guaranteed Loans
USDA
$43 million in credit
subsidies supporting
$993 million in private
investment
Leverage private capital to improve, develop,
or nance business, industry, and employment
and improve the economic and environmental
climate in rural communities
Commercial or nonprot
development
corporations
H-1B Technical
Skills Training
DOL/
ETA
$240 million in formula
grants to states.
39

Facilitate job training and placement assistance
for American citizens in competitive,
high-skill industries that are being transformed
by technology and innovation requiring new
skill sets for workers.
40
State governments,
re-granted to educa-
tional institutions and
training providers
WIA Pilots,
Demonstrations,
and Research
DOL/
ETA
$45 million in project
grants or contracts
Conduct research, pilots, or demonstrations
that improve techniques of existing or new ETA
workforce training programs.
41

State and local govern-
ments, federal agencies,
private nonprot and
for-prot organizations,
educational institutions
Green Jobs
Innovation Fund
DOL/
ETA
$60 million in
project grants
Expand training opportunities in green industry
sectors, help workers get better jobs, and
increase compensation.
42
Workforce training
providers, educational
institutions
Advanced Technological
Education
NSF
$64 million in
project grants
Support curriculum development and profes-
sional development for educators to foster next
generation of technicians
Institutions of higher
education, nonprots
Science, Technology,
Engineering, and
Mathematics Talent
Expansion Program
NSF
$30 million in
project grants
Implementation of programs at academic
institutions designed to increase the number
of students receiving associate or bachelors
degrees in established or emerging STEM elds
Institutions of higher
education, nonprots
Transforming Undergrad-
uate Education in Science,
Technology, Engineering,
and Mathematics
NSF
$38 million in
project grants
Supports projects that develop faculty
expertise, implement educational innovations,
assess learning and evaluate innovations,
prepare K-12 teachers, or conduct research on
STEM teaching and learning
Institutions of higher
education
Math and Science
Partnership
NSF
$58 million in
project grants
Supports a national network to share best
practices and enhance coordination around
science and math education
Institutions of higher
education
Program Agency Funding level and type Purpose Recipients
* Budget gures are approximate. Appropriations from the catalogue of Federal Domestic Assistance, or from agency budget documents.
36 Center for American Progress | Rewiring the Federal Government for Competitiveness
Appendix B
Existing trade programs and the new Competitiveness Department
Office of the United States Trade Representative
Te omce of the USTR is a $48 million White House omce responsible for
developing and coordinating U.S. international trade, commodities, and direct
investment policy, and overseeing negotiations with other countries.
43
Under the
reorganized Department of Competitiveness, the U.S. trade representative could
also serve as the deputy secretary for trade in addition to being the presidents
primary adviser on trade issues.
Te U.S. trade representative would retain a streamlined omce in the executive omce
of the president to facilitate his or her advisory role. Te bulk of interagency trade
policy coordination done by the omce would move and integrate with the new trade
agency within the Department of Competitiveness. Te unique dual nature of this
new position within the new department and within the White House could have
the potential to complicate lines of authority within the executive branch between
the undersecretary and the secretary of the new department. But we believe that the
potential benehts of cross-executive branch coordination created by this process-
interagency coordination at the new department and a presidential advisory role at
the White House-would bring trade competitiveness issues more directly to the
fore in U.S. policymaking without weakening the historic strengths of USTR.
International Trade Administration
Fresh on of a major round of internal reorganization, and with a liule more than
$500 million in annual budget authority, the International Trade Administration
is well positioned to remain the kernel of trade policymaking and business-facing
service delivery in the reorganized Department of Competitiveness. Two of ITAs
four business units further the trade representation function of the trade agency
within the new department.
44

Te Market Access and Compliance omce and the Import Administration omce
both work at a strategic level to help enforce trade laws, and conduct commer-
cial diplomacy to ensure that American businesses and products can compete
on a level playing held. We suggest that these two units could be merged with
the trade representation and functions of the USTR and the relevant State
Department trade representation functions described below as part of a more
comprehensive trade policy apparatus.
45

46

37 Center for American Progress | Rewiring the Federal Government for Competitiveness
Te other two units at ITA, Commercial Service and Manufacturing and Services,
provide industry-facing services and should be more tightly integrated with the
hnancing services provided by the Overseas Private Investment Corporation and
U.S. Export-Import Bank (both discussed below). Te U.S. Commercial Service
provides a number of services, including trade counseling, market intelligence,
business matchmaking, and trade promotion programs.
47
Te Manufacturing
and Services unit and the Market Development Cooperator Program within it
are tasked with helping U.S. manufacturing and services compete in international
markets through the coordination of technical standards, and by helping with
interagency coordination around export promotion.
48

Bringing these functions into the trade agency and aligning them more closely
with similar hnancing assistance and counseling services in the Ex-Im Bank
would help streamline government-industry interaction, provide the opportu-
nity for coordinated strategic planning, and eliminate redundancy. Te capabil-
ity of the new departments trade functions will certainly improve our nations
vital export push.
Department of States trade functions
Bringing trade representation under one roof will require a more strategic inte-
gration with the State Departments trade functions as well. We suggest that the
new trade agency within the competitiveness department integrate the State
Departments Omce of Trade Policy and Programs,
49
including all of its four omces:
r
Omce of Agriculture, Biotechnology, and Textile Trade Anairs, which covers all
bilateral and multilateral trade agreements relating to agricultural products, and
seeks to maintain open markets for U.S. biotech products
r
Omce of Bilateral Trade Anairs,
50
which more broadly manages U.S. bilateral
trade relations around the world, including negotiation of free trade agreements
and trade preference programs
r
Omce of Intellectual Property Enforcement,
51
which helps protect American
technology from patent and copyright infringement abroad
r
Omce of Multilateral Trade Anairs,
52
which manages U.S. interests in mul-
tilateral trade institutions, including the World Trade Organization and the
Organisation for Economic Co-operation and Development
38 Center for American Progress | Rewiring the Federal Government for Competitiveness
Because these omces do the actual legwork of negotiating and implementing vari-
ous aspects of U.S. trade policy, they should be at the disposal of the new under-
secretary for trade.
Additionally, two of the three branches of the Omce of Commercial and
Business Anairs-the Omce of Commercial Diplomacy, which provides advo-
cacy and support to American businesses in operation abroad, and the Omce of
Entrepreneurship, which acts as a vehicle to coordinate business and research
relationships with partners around the world-are ripe for reorganization and
inclusion in the streamlined trade agency.
53
Consolidating the industry-facing
services provided by the Omce of Commercial Diplomacy with those provided
by the Ex-Im Bank, the Overseas Private Investment Corporation and the U.S.
Trade and Development Agency would help provide a more coherent user inter-
face for American businesses.
Similarly, the Omce of Economic Policy Analysis and Public Diplomacy, with its
expertise in private-sector participation, global macroeconomics, and the impact
of policy on the international business climate, would be an asset to the new
Competitiveness Department. Its big-picture policy work would do well to be
integrated into the Omce of the Undersecretary for Trade.
54
Bureau of Industry and Security
Currently in the Department of Commerce, the mission of BIS is to advance U.S.
national security, foreign policy, and economic objectives by ensuring an enective
export control and treaty compliance system and promoting continued U.S. stra-
tegic technology leadership.
55
Te bureau has an annual budget of approximately
$100 million.
56
Tese trade-oriented functions should be integrated and stream-
lined with the above in this list in order to develop synergies among existing
enforcement mechanisms and trade tools.
Te importance of bringing this bureau into the larger orbit of trade and exports
cannot be overstated. Te United States boasts the largest market in the world, but
our companies access to other nations markets onen are held hostage to implicit
or explicit, but unfair, technology transfer demands, including from fast-develop-
ing nations such as China. Protecting our companies from these demands must be
a major focus of the new Department of Competitiveness.
Similarly, intellectual property then that threatens our companies competitive-
ness at home remains a major problem abroad too, again with China a nagrant
39 Center for American Progress | Rewiring the Federal Government for Competitiveness
violator. Again, coordinating our nations response will be a top priority of the
new department.
Export-Import Bank of the United States
With its mission to help create domestic jobs, the Ex-Im Bank has supported
more than $456 billion of U.S. exports in its 77 years of experience. As the omcial
export credit agency of our nation, the Ex-Im Bank helps U.S. manufacturers
access overseas markets through credit enhancements and hnancial tools that
mitigate some of the risks associated with doing business in foreign markets.
57

Te Ex-Im Bank would bring the teeth to the new trade-promotion sub-agency.
Bringing this hnancially self-sustaining agency together with other federal trade
functions would overcome hidden and overt foreign protectionism and help bring
U.S. technologies to new and growing global markets.
58
From hnancing assistance
to working capital loans to insurance, the Ex-Im Banks broad authorities allow for
a powerful suite of industry-facing services.
Te addition of the Ex-Im Bank to the new trade sub-agency would provide the
hrepower needed to implement the new trade-related technology and economic
development goals identihed by the new Competitiveness Department.
U.S. Trade and Development Agency
USTDA is an independent government foreign assistance agency funded by
Congress to help companies create American jobs through the export of goods
and services in emerging markets. U.S. businesses are linked to export oppor-
tunities through funded project-planning activities, pilot projects, and reverse
trade missions.
With $55 million in annual appropriations today, USTDA programs over 10
years generated about $14 billion in U.S. exports to emerging markets, sup-
porting as many as 87,000 American jobs.
59
Tat represents a private return on
public investment of more than 2,500 percent, and a private-sector job-creation
rate of under $6,500 per job.
Indeed, USTDAs unique expertise, contacts, and capabilities related to com-
merce with developing markets are very similar to that of the International Trade
Administration, OPIC, and the Ex-Im Bank. For this reason it makes a good can-
didate for integration with these agencies in the streamlined trade agency within
the new Competitiveness Department.
40 Center for American Progress | Rewiring the Federal Government for Competitiveness
Overseas Private Investment Corporation
OPIC is an independent, hnancially self-sustaining federal agency with a budget
of roughly $80 million that mobilizes private capital for the purpose of help-
ing solve critical world challenges in more than 150 developing and transitional
economies.
60
In doing so, the OPIC advances U.S. foreign policy while helping
American businesses create strong footholds in emerging markets by providing
companies with investors, guarantees, political risk insurance, and support for
private equity investment funds.
OPICs mission is closely related to that of the U.S. Trade and Development
Agency, and the loans, insurance, and hnancing assistance it provides represent
a similar set of tools, making it an excellent candidate for consolidation within
the same umbrella trade agency. Integrating all of the export and international
hnancing assistance programs in the Ex-Im Bank, USTDA, and OPIC would allow
beuer implementation of competitiveness-focused trade strategies such as the
presidents National Export Initiative to double exports in hve years.
61

41 Center for American Progress | Rewiring the Federal Government for Competitiveness
Appendix C
Existing technology programs and the new Competitiveness Department
National Institute of Standards and Technology and its Manufacturing
Extension Partnerships
Te National Institute of Standards and Technology is an unsung hero of general-
purpose technology innovation within the Department of Commerce. NIST is one
of the few agencies outside the Department of Defense that has developed over
centuries a close and functional relationship with industry and the capacity to play a
positive role in the development and dissemination of new industrial technology. Its
inclusion in the Department of Competitiveness goes without saying.
NIST currently has a budget of approximately $1 billion.
62
Support for NIST
must include its traditional industry-oriented laboratories, as well as its extension
programs such as its Manufacturing Extension Partnership, or MEP, program,
which leverages federal funds for local money on a virtually dollar-for-dollar basis.
Te MEP program maintains a network of more than 1,400 held stan in omces in
every state, providing U.S. manufacturing companies with a wide array of fun-
damental services, helping them to access cuuing-edge technology and become
more emcient and competitive in global markets.
Te MEP, in its own words, works with partners at the state and federal levels on
programs that put manufacturers in position to develop new customers, expand into
new markets and create new products.
63
Te MEP has a record of success in helping
spur innovation and create jobs. Te Department of Commerce reports that in 2009
the MEP helped manufacturers retain more than 72,000 American jobs, at a cost of
$1,600 per job. Tats a great return on investment. Put another way, for every $1 of
federal investment, the MEP program generates on average $32 in new sales growth,
helping build markets for the technologies that will power our future.
But the network represented by the MEP could be beuer leveraged if coordinated
with networks from the Economic Development Administration, Employment
and Training Administration, and Small Business Administration. Te task of
moving technology from university or start-up to market requires not just a
proof-of-concept and someone to make it, but also a pool of capable workers, the
availability of hnancial capital, access to the markets and supply chains, and close
contact with the eventual customers of the new technology. Tus, coordinating
42 Center for American Progress | Rewiring the Federal Government for Competitiveness
the regional networks of the MEP with those of the other agencies included in
the Department of Competitiveness would help ensure that manufacturers across
the country are well supported by the talent, infrastructure, creativity, and private
hnancial capital of the communities that surround them.
National Telecommunications and Information Administration
Already within the Department of Commerce, this bureau deals with telecom-
munications broadband and spectrum dissemination and regulation, along with
important policy issues such as online privacy, and provides information to the
president on telecommunications mauers. As broadband infrastructure remains
an important part of innovation ecosystems and local economies, it follows that
this agency should sit within the reorganized Department of Competitiveness
in order to beuer collaborate critical infrastructure investments with broader
regional economic development and technology innovation grants.
Te agencys budget is currently approximately $55 million.
64
Te U.S. Department
of Agricultures Broadband Initiative Program would be joined with NTIA in the
new Department of Competitiveness. Te reason: Fully linking all of our nations
communities via broadband will bring the promise of economic development to all
Americans-a strategy that requires coordinated federal policies. Additionally, given
the similarity of purpose between the U.S. Department of Agricultures broadband
initiative and the NTIA, combining these programs would beneht both of them,
while ensuring that rural regions continue to receive the support they need.
National Technical Information Service
Te National Technical Information Service, or NTIS, is a self-funding agency
that serves as the federal governments central repository for data about public
and private R&D activities and results.
65
NTIS maintains a library of more than
3 million technical documents and journal articles and makes them available to
businesses and the public.
Tis agencys function must be strengthened and integrated with the Department
of Commerces Economics and Statistics Administration and the Department of
Labors Bureau of Labor Statistics to give the federal government and Congress a
comprehensive overview of our national economic competitiveness.
Patent and Trademark Office
Te Patent and Trademark Omce, or PTO, plays an important gatekeeper role
in all technology-related enterprises. A reformed and independent PTO with
43 Center for American Progress | Rewiring the Federal Government for Competitiveness
increased control over its own costs and revenue remains a critical component of
the new Department of Competitiveness. Increased proximity with international
intellectual property and trade enforcement functions in the new department
could also be advantageous.
Te PTO is self-funding, but Congress frequently raids the PTOs coners,
preventing the organization from doing the necessary hiring it needs to do to
eliminate the massive backlog of patent applications or reduce the three-year
wait time for patent decisions.
66

67
A reformed PTO with enhanced autonomy,
particularly over budget, stan, and hiring, would remain within the Department
of Competitiveness. Reducing patent pendency rates and accelerating the patent
process would help companies and innovators bring their inventions to market
more quickly and with greater ease. Additionally, more strategic use of the patent
process not just as a one-time interaction with inventors but also as a gateway for
the commercialization of new technology could help accelerate start-up busi-
nesses development and job creation.
Recently the president signed into law the America Invents Act, which addresses
the challenges enumerated above and confers some fee-seuing authority on the
Patent and Trademark Omce, while implementing a hrst-to-hle system.
44 Center for American Progress | Rewiring the Federal Government for Competitiveness
Appendix D
Existing small business and local economic coordination programs
and the new Competitiveness Department
Economic Development Administration
Te Economic Development Administration, or EDA, is a small agency with big
power. With an annual spending authority of only $345 million, EDA nonethe-
less plays and should continue to play an important role in bringing together
other federal resources around the goal of bouom-up, place-based innovation
and economic development.
68
Its existing key programs,
69
listed below, would
be at the heart of regional innovation and economic development through the
Common Application program:
r
Technical Assistance, a $9.8 million program that helps universities and non-
prohts to conduct feasibility studies, formulate and implement economic devel-
opment tools, and provide management and operational assistance.
70
r
Partnership Planning, a $31 million program for localities and tribes to obtain
funding to develop regional economic development plans.
71
r
Research and Evaluation, a $1.5 million program for research into cuuing-edge
economic development practices.
72
r
Economic Adjustment Assistance, a $38.6 million program for strategy develop-
ment, infrastructure construction, and revolving loan capitalization for techni-
cal, planning, and public works projects in economically distressed regions.
73
r
21st-Century Innovation Infrastructure (formerly Public Works and Economic
Development), which provides $158 million to support the construction,
expansion, or upgrade of public infrastructure.
74

r
Trade Adjustment Assistance for Firms ($15.8 million), which supports a
network of trade adjustment centers that assist small and medium-size hrms in
adapting to changing global trade conditions.
75
r
Regional Innovation Program (formerly Growth Zones) ($40 million), which
facilitates a nationwide competition to encourage 20 communities to develop
and implement regional strategic economic growth plans.
76
45 Center for American Progress | Rewiring the Federal Government for Competitiveness
r
Sustainable Economic Development (formerly Global Climate Change
Mitigation Incentive Fund) ($25 million), which helps underserved commu-
nities fund clean energy, energy-emcient green building, recycling, and green
manufacture projects.
77

Te EDA is currently the center of federal enorts to empower communities
to engage in bouom-up economic revitalization and growth planning and
implementation. Tis is why we believe the agency should be the centerpiece
of the new Competitiveness Departments economic growth focus. In todays
economic environment, these programs are helping small businesses, communi-
ties, regions, and localities to reinvent themselves and create new ways forward.
Moreover, these programs, if integrated, would give the Common Application
program nexibility in its authority to fund a broad array of bouom-up regional
economic development activities.
Small Business Administration
Te Small Business Administration operates a number of programs with simi-
lar goals targeted at individual businesses that should be harmonized with the
broader regional economic development activities funded above. Already the SBA
operates programs that address technology, workforce, and trade-related chal-
lenges, so bringing these functions together with others within a Competitiveness
Department makes sense. Many of the SBAs programs make sense as straightfor-
ward components of the Common Application, and are listed in Appendix A.
Region-level economic growth strategies supported by EDA and the hrm- and
project-level programs supported by SBA are complementary, and together can
create new synergies and put additional tools at the disposal of both innovative
small business seeking and the regional economies that support their success.
Minority Business Development Administration
Te Minority Business Development Administration, currently budgeted at
$32.3 million, uses many of the same tools at play elsewhere in the Department of
Commerce.
78
Tats why its programs should be folded into broader competitive-
ness objectives of this new departments omce of economic growth while ensuring
that the services rendered to the business community are equitably shared and
used to empower communities of color.
Te MBDA programs whose goals and missions must continue to operate within
the new Department of Competitiveness are its MBDA Business Centers ($14
46 Center for American Progress | Rewiring the Federal Government for Competitiveness
million), comprising the Minority Business Enterprise Centers ($8 million), the
Native American Business Enterprise Centers ($2 million), and the Minority
Business Opportunity Center ($2 million).
79
Te minority-owned businesses
aided by these centers would be beuer served through their inclusion in the
broader gambit of regional economic growth strategies.
Center for Veterans Enterprise
Te Center for Veterans Enterprise boasts two simultaneous and mutually rein-
forcing functions. First, it provides services and counseling to our returning vet-
erans to help them reintegrate into society through entrepreneurship training and
programs. Second, it serves as a way to harness a powerful and untapped resource
for our nations long-term competitiveness-the skills, ingenuity, and leadership
of our returning veterans.
Our soldiers are some of the most highly trained and resourceful individuals in
the economy. In addition to fulhlling the moral obligation to provide them with
career opportunities as they return from duty and transition back into civilian life,
we also seize the opportunity that their skills represent. Our veterans represent a
resource that should be leveraged more aggressively toward our goals of domestic
innovation and competitiveness. In order to demonstrate our continued commit-
ment to our nations veterans, this function would be maintained as a separate unit
within the new department.
Department of Rural Development
Te Department of Rural Development ($2.9 billion) coordinates key infra-
structure and services in underserved rural regions, including sewer, water,
health care, and bouom-up community-managed hnance.
80
Te Department
of Rural Development manages a $115 billion portfolio in rural community
development loans, and these existing loans, as well as future ones, should
be coordinated around the goals of bringing the infrastructure of innovation
and competitiveness to every corner of the country.
81
(Te Department of
Agricultures Broadband Initiatives Program would be separately joined with
NTIA, as detailed in the hrst section of our report.)
Specihcally, the Rural Business-Cooperative Service, which works to promote the
understanding and use of the cooperative business model through loans, grants,
loan guarantees, and nonhnancial technical assistance to entrepreneurs and devel-
opment organizations, would beneht from coordination through the Common
App.
82
Among its programs are:
47 Center for American Progress | Rewiring the Federal Government for Competitiveness
r
Business and Industry Guaranteed loans ($993 million program level, $43
million budget authority), which leverage private capital to improve, develop,
or hnance business, industry, and employment and improve the economic and
environmental climate in rural communities
83

r
Rural Business Enterprise grants ($40 million), which provide funding for pub-
lic works and critical rural infrastructure, as well as capitalization for revolving
business loan funds
84

Any decision to move the Department of Rural Development will be controver-
sial. In particular, it is likely to be said that other parts of the government do not
understand the special needs of rural America. Tat could be, of course, partly
because rural programs have traditionally been kept separate, but the need to
include rural development in a broader bouom-up economic growth strategy rests
on two propositions.
First, intra-agency coordination is more enective than interagency coordination.
Shared goals, organizational culture, systems of accountability, and physical work-
ing environments make collaboration and idea cross-pollination more enective
within an agency than across them.
Second, there seems liule doubt that rural development needs to be con-
nected in some ways with the economic growth strategies (and, in the case
of the Broadband Initiative Program, with NTIA) of the new Department of
Competitiveness. Rural America simply has to be beuer linked to the centers of
regional economies to help its agricultural businesses, but in particular its manu-
facturing and services industries, which account for more than half of all employ-
ment in rural America.
85
Federal programs that support bouom-up regional economic growth will increase
the enectiveness of regional economies and will easily span rural-to-urban com-
munities. Tat would counsel in favor of hnding common regional advantages
between urban, suburban, and rural strengths.
Nonetheless, if this change is made, it will be important that the new economic
development unit be given the charge to reach all regions and the expertise to
work in rural areas. As a mauer of history, much of the support for EDA has come
from rural, and not urban, legislators, which may give that agency a head start in
integrating dinerent geographic economic strategies.
48 Center for American Progress | Rewiring the Federal Government for Competitiveness
Community Planning and Development
Te Community Planning and Development, or CPD, program costs $9 million to
administer and provides tens of billions of dollars in hnancial incentives to under-
served localities and regions.
86
Given the place-based nature of this work within
the Department of Housing and Urban Development, as well as its similarity to
existing programs administered by the Small Business Administration, Economic
Development Administration, USDA, and elsewhere, we suggest that the programs
and expertise be explicitly coordinated or completely integrated into the new eco-
nomic development agency within the Department of Competitiveness.
Te programs within the CPD that help coordinate public and private infrastruc-
ture and development needs would do well in the new department. It operates
several economic and community development initiatives that may be redundant
with many of the programs already mentioned in this paper, including a host of
hnancial supports from loan guarantees to tax credits to block grants.
87
We sug-
gest, however, that certain activities related to anordable housing assistance and
specialty needs should remain at HUD.
Office of Economic Adjustment
We believe that the inclusion of the Defense Departments Omce of
Economic Adjustment ($80 million) would be a big plus for the new Omce of
Undersecretary for Economic Growth, due to OEAs experience with region-
based economic planning.
88
Te OEA has a long history of helping regions and
localities adjust to changing economic circumstances as they transition from
dependence on the defense-industrial complex to other forms of industry. Why
should this expertise and proven track record in catalyzing enective regional eco-
nomic planning and industrial transition be limited only to situations impacted by
the Defense Department? Tese networks and expertise need to be tapped as we
integrate federal involvement with bouom-up, place-based innovation strategies.
Specihcally, the OEAs Community Economic Adjustment Planning Assistance,
or CEAPA, grant programs would do well within the new department. Tis omce
currently dispenses grants for the planning and implementation of regional eco-
nomic adjustment strategies in four areas:
r
Compatible Use grants help to fund joint land-use studies that protect the
public health and safety of civilian development, while ensuring that commu-
nities can make the most of the economic opportunities of their proximity to
defense installations.
89
49 Center for American Progress | Rewiring the Federal Government for Competitiveness
r
Defense Industry Adjustment grants help communities anected by factory
closures and other forms of defense employment reduction to adapt to chang-
ing economic circumstances, including helping bring together many of the
tools we suggest merging permanently in this report such as the manufactur-
ing extension partnerships, business hnancing and incubator programs, work-
force assistance programs, export plans, and oversight about how to integrate
the benehts of these programs.
90
r
Mission Growth Planning Assistance grants provide similar resources as the
Defense Industry Adjustment grants for communities experiencing defense-
industry-related growth.
r
Te Base Realignment and Closure, or BRC, grant program has 50 years of
experience in facilitating economic transition caused by military base closures.
Te grants and guidance are made available through BRC. But we suggest that
the BRC commission itself, which makes geographic national-security deci-
sions, should remain where it is in the Defense Department.
50 Center for American Progress | Rewiring the Federal Government for Competitiveness
Appendix E
Existing workforce programs and the new Competitiveness Department
Employment and Training Administration, Department of Labor
Te crux of the workforce enorts within the new department should con-
sist of much of the work currently conducted by the Department of Labors
Employment and Training Administration, or ETA, and its regional networks
of public career and employment services providers. With an annual budget of
roughly $12.5 billion, the ETA supports a wide range of activities and programs
that protect or enrich more than 10 million American workers annually.
91

We believe that the ETA functions designed to enrich workers with skills, edu-
cation, training, guidance, and counseling would be critical assets for the new
Department of Competitiveness. Tose programs such as the Unemployment
Insurance program, which helps protect workers from structural unemployment
as part of the social safety net, can and should remain at the Department of Labor.
Tese continuous career counseling and technical training functions of the ETA
would constitute the hrst core function of our plan for competitive workforce
development. Enabling all Americans to plan long-term career pathways instead of
repeatedly responding to short-term unemployment emergencies would be a core
goal of this omce. Te nationwide network of One-Stop Career Centers already
provides basic labor market information, job search assistance, skill assessments,
and limited career counseling to millions of workers every year.
But the One-Stop system can no longer be a crisis intervention system focused on
short-term job placement. Continuous career counseling is an iterative, mentored
process that enables workers to build education, work experiences, and techni-
cal credentials over time, and should be a new focus of the One-Stop system. As
the economy becomes increasingly knowledge-based, career counselors will help
workers move away from short-term training programs that serve as temporary
Band-Aids and instead, help them plan long-term career development trajectories.
Te goals of developing and protecting Americas talent are laudable unto them-
selves. But ETAs many workforce development programs would be more enective
if managed with an eye toward the role they play in achieving broader competi-
tiveness goals at the regional and national level. Tus, we suggest moving these
functions into the new department, to be deployed side-by-side with regional
51 Center for American Progress | Rewiring the Federal Government for Competitiveness
funding and programmatic support delivered to small businesses, public works
projects, regional economic development programs, start-up incubators, and
university-industry research partnerships.
Te following omces and programs
92
managed by the ETA support these goals of
continuous career counseling and technical training:
r
Te Omce of Workforce Investment, which coordinates funding from the
Workforce Investment Act, maintains the national network of One-Stop
Career Centers and doles out funding via state workforce investment boards,
would be a core asset to the new department.
93
Connected to this work, the
$3.8 billion set of programs listed under Training and Employment Services
includes the Adult Worker, Dislocated Worker, and Youth Services programs,
with annual budgets of $861 million, $1.4 billion, and $924 million, respec-
tively.
94
Te One-Stop Career Centers, the workforce innovation fund, green
jobs innovation fund, career pathways innovation fund, and dislocated work-
ers assistance are discussed separately below.
r
Te One-Stop Career Centers act as the user interface for the ETAs employ-
ment, career counseling, and training programs.
95
Tey provide access to a
wide range of federal training, guidance, credentialing, and other professional
development services to job-seekers and employers, and constitute a large
network of regional omces. Our recommendation is to include the One-Stop
Career Centers in the new department, while combining their enorts with other
regional programs currently under the Economic Development Administration,
the Department of Education, and elsewhere in the ETA. Tis would mean
broadening the ability of the One-Stop network to deliver long-term career
development, training, education, and credentialing services to complement
existing strengths around short-term job placement.
r
Te Omce of Regional Management operates the network of regional ETA
omces.
96
Combining this national network of regional omces with the regional
omces in the Economic Development Administration would work to beuer
leverage the assets and activities of both organizations.
r
Te Omce of Policy & Research currently helps set the ETAs strategic vision
and legislative and regulatory approach.
97
Tis omce will be critical to the work
of the undersecretary as new synergies are explored between the ETAs pro-
grams and those that will reside in the economic development and technology
sub-agencies in the new Department of Competitiveness.
52 Center for American Progress | Rewiring the Federal Government for Competitiveness
r
Te Trade Adjustment Assistance program, or TAA, at a cost of $1.8 billion,
helps millions of Americans whose jobs are anected by changes in international
trade pauerns.
98
By directly aiding U.S. workers who have lost jobs as a result of
foreign aid, the Trade Adjustment Assistance program at the Labor Department
provides a path of employment growth in each state.
99
In addition to direct
hnancial assistance, the program provides the skills, resources, and support to
help trade-anected individuals become re-employed. Congress provided an
additional $500 million in TAA funding through FY 2011 ending in October,
following authorization in the American Recovery and Reinvestment Act of
2009 through the TAA Community College and Career Training grant pro-
gram.
100
Bringing this department under the same roof with the trade-related
programs in the new department could help improve accountability and data-
driven management of the program by beuer connecting it with activities of
various federal trade and workforce functions and intelligence.
r
Te Omce of Job Corps, a $1.7 billion program, operates a national network of
125 centers around the country that provide young people ages 16-24 in under-
served or distressed communities with holistic job training and career counsel-
ing services that integrate the teaching of academic, vocational, employability
skills and social competencies through a combination of classroom and practical
based learning experiences.
101

r
Te Omce of Apprenticeship currently operates the registered apprentice-
ship program, a $28.7 million program that provides workers with on-the-job
training while providing employers with a pipeline of skilled workers in their
held.
102
Participating employers are also eligible for tax benehts and workforce
development grants. Tere is also an additional $1 million in funds for Women
in Apprenticeship-a program that promotes the recruitment, training, and
employment of women in apprenticeship and nontraditional occupations.
Bringing this program into the Department of Competitiveness would acceler-
ate enorts already underway to increase the programs focus on innovative, 21st-
century science-, technology-, engineering-, and math-oriented career ladders.
103
Office of Vocational and Adult Education, Department of Education
Te second core function of the new competitive workforce omce would be to
enhance integration of the higher education, technical education, and workforce
training systems. Te hrst step to accomplishing this goal would be to bring
the Education Departments Omce of Vocational and Adult Education into the
Department of Competitiveness, adjusting its duties and functions to suit the
needs of a more networked competitiveness strategy.
53 Center for American Progress | Rewiring the Federal Government for Competitiveness
Te Omce of Vocational and Adult Education, a $1.7 billion agency, dispenses
grants to fund adult literacy, career and technical education, and community col-
lege programs at the state level.
104
Tese grants are used to help students, particu-
larly adult students, gain the educational resources necessary to train for high-skill,
high-wage, and high-demand occupations in the innovation economy. In doing so,
they deal with similar stakeholders and operate similar programs with those in the
ETAs various technical-skills job training programs.
We believe the enectiveness of the adult career and technical education grants could
be optimized by relocating those omces to the new Department of Competitiveness.
But we would leave broader community college funding programs alone. Te
Department of Education division responsible for directing the role of commu-
nity colleges in national education policy broadly-the Omce of Postsecondary
Education-should focus on enhanced collaboration with new Department of
Competitiveness workforce development programs rather than be transferred over
to the new department.
105
Its program activities are broader than the technical pro-
grams discussed above and are beuer served by the Education Departments focus
on developing quality academic standards than on our new departments goals.
Our current system of middle-skill technical education does not provide suf-
hcient course credit portability to adequately reward workers who develop new
skills. A revamped Omce of Vocational and Adult Education would work col-
laboratively with community colleges, training providers, and industry to ensure
that all publicly and privately funded training programs produce transferable and
portable college credits. Tis would help workers build their skills and credentials
more nexibly, enectively, and continuously to keep pace with the rapidly chang-
ing demands of the innovation economy. Tis directive would include training
programs such as WIA State Grants for Dislocated Workers, WIA competitive
grants, H-1B Technical Skills training grants, Trade Adjustment Assistance job
training funds (including Trade Adjustment Assistance Community College and
Career Training Grants), Workforce Innovation Funds, and Perkins CTE grants
for postsecondary education.
Te Department of Labors H-1B Technical Skills training grant competition is a
good example of an existing job-training program with integrated college credit.
Tese grants are intended to raise the technical skill levels of American workers
so they can obtain or upgrade employment in high-growth industries and occupa-
tions. Te grant competition helps stimulate innovation in job training programs
by linking grant awards to auainment of industry-recognized credentials. Tese
54 Center for American Progress | Rewiring the Federal Government for Competitiveness
grants, with enhanced access to industry and economic development networks
brought by the agencies in the other three pillars, could take this much further.
Te training grants included linking future grant competitions to credential pro-
grams that also provide transferable college credit. Ultimately, all training funds
for college-ready students and workers should be tied to college credit and include
a pathway to an associate degree or beuer.
In addition to the Department of Labor programs discussed above, another major
source of funding for these technical education and job training programs comes
from the Division of Academic and Technical Education,
106
or DATE, under the
Omce of Vocational and Adult Education. DATE is responsible for administering
the Perkins Career and Technical Education Act,
107
which provides $1.1 billion in
state formula grants for activities such as:
r
Creating integrated programs merging academic and career technical education
r
Providing preparation for nontraditional helds in current and emerging high-
skill, high-wage, high-demand professions
r
Supporting partnerships among local educational agencies, institutions of
higher education, and adult education providers
But as our colleagues Louis Soares and Stephen Stiegleder discuss at length in a
forthcoming paper in this series Building a Technically Skilled Workforce, the
Perkins funds-divided evenly across many states, and then again within states
across multiple training programs-fall short of the amount necessary to foster
policy innovation among training services providers. Converting these funds into
a competitive grant program to be included in our Common Application program
would maximize the impact of these funds, albeit at the expense of distributing
them evenly according to the existing formula.
Including this new competitive grant program in the Common Application pro-
gram with those focused on community college and industry partnerships would
help bring together the related enorts of job training, job placement, career coun-
seling, and technical education targeted toward regional and industry demands.
National Science Foundation workforce education programs
Finally, the National Science Foundation currently funds a number of grant
programs designed to enhance science, technology, engineering, and math educa-
tion, which could be beuer leveraged by rolling them into the Competitiveness
Departments Common Application program:
55 Center for American Progress | Rewiring the Federal Government for Competitiveness
r
Te Advanced Technological Education program at the National Science
Foundation focuses on educating and preparing technicians for the next genera-
tion of high-tech helds with a special emphasis on two-year colleges.
108
Te $64
million program supports curriculum development, professional development
for educators, and bridging connections between secondary institutions and
two- and four-year programs.
109

r
Te Science, Technology, Engineering, and Mathematics Talent Expansion
Program, or STEP, provides about $30 million annually for implementation of
programs at academic institutions designed to increase the number of students
receiving associate or bachelors degrees in established or emerging STEM
helds, as well as funding social science research on increasing associate or bach-
elors degree auainment in STEM.
110

r
Te Transforming Undergraduate Education in Science, Technology,
Engineering and Mathematics program similarly allocates $38 million in
funding for projects that develop faculty expertise, implement educational
innovations, assess learning and evaluate innovations, prepare K-12 teachers, or
conduct research on STEM teaching and learning.
111
r
Te Math and Science Partnership, or MSP, program is a major research and
development enort that supports innovative partnerships to improve K-12
student achievement in mathematics and science.
112
Te program supports a
national network that connects all projects funded by the MSP program to share
best practices and enhance coordination.
113

Tese STEM education programs could beneht from coordination with the
technical training, college credit, and continuous career counseling discussed
above, as well as with enhanced intelligence about regional businesses, industry,
and long-term growth plans provided by the other pillars of the Department of
Competitiveness. We posit that the STEM and technical education programs sup-
ported by these NSF grants could be tailored to ht the unique business and future
workforce needs of regional economies, industries, and innovation clusters.
56 Center for American Progress | Rewiring the Federal Government for Competitiveness
About the authors
Jonathan Sallet is a partner in the Washington D.C. omce of OMelveny & Myers
LLP. During the Clinton Administration he served Assistant to the Secretary
and Director of the Omce of Policy & Strategic Planning of the Department of
Commerce, focusing on economic and technology policy. He was the author of
the chapter on the Department of Commerce in CAPs book on the 2008 presi-
dential transition, and serves as Special Advisor to CAPs Science Progress project
on regional innovation clusters. He is a graduate of Brown University and the
University of Virginia Law School.
Sean Pool is the assistant editor of Science Progress, the Center for American
Progresss online science and technology policy journal. Sean has authored
numerous CAP reports about the innovation economy and policies that promote
small business success, entrepreneurship, and bouom-up economic growth.
Prior to that, he served as special assistant to the vice president of energy policy
at American Progress, where he focused on enhancing U.S. industrial and eco-
nomic competitiveness through the research, commercialization, and deployment
of clean energy technologies. Sean received his bachelors degree from the Yale
University environmental engineering department.
Acknowledgements
Te authors would like to recognize the generous support and feedback given
by many individuals in the craning of the ideas in this paper. Without Elaine
Sedenbergs invaluable research, this paper would not have gouen on the ground.
Ed Paisley was instrumental in helping shape our thinking for this paper and for
his invaluable edits. Members of our taskforce on science and competitiveness
provided constructive criticism, feedback, and ideas indispensable to this series.
In particular, James Turner, Neal Lane, Brian Kahin, Arti K. Rai, Rachel Levinson,
Daniel Sarewitz, John Alic, and Chris Hill provided critical feedback that guided the
content and structure of this report and others in the series. Finally, this series would
also not have been possible without important and substantive contributions from
Sarah Wartell, Michael Eulinger, Jitinder Kohli, Kate Gordon, and Reece Rushing.
57 Center for American Progress | Rewiring the Federal Government for Competitiveness
Endnotes
1 A Strategy for American Innovation: Securing Our Economic
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2 Presidential Memorandum--Government Reform for Competitive-
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dential-memorandum-government-reform-competitiveness-and-
innovation
3 S. Pool, A Win for Regional Innovation: Interagency Energy Ecien-
cy Cluster Initiative to be Located in Philadelphia (Washington: Sci-
ence Progress, August 25, 2010), available at http://scienceprogress.
org/2010/08/a-win-for-regional-innovation/
4 A. Rai, S. Graham, and M. Doms, Patent Reform: Unleashing Innova-
tion, Promoting Economic Growth & Producing High-Paying Jobs,
U.S. Department of Commerce, April 13, 2010, available at http://
www.commerce.gov/sites/default/les/documents/migrated/Pat-
ent_Reform-paper.pdf
5 B. H endricks, S. Pool, and L. Kaufman, Low Carbon Innovation,
American Progress, May 2011, available at: http://www.american-
progress.org/issues/2011/05/low_carbon_innovation.html
6 J. Erickson and S. Pool, Accelerating Regional Innovation and Job
Creation, American Progress, November 2011, available: http://
www.americanprogress.org/issues/2011/11/jobs_accelerator.html
7 Jobs & Innovation Accelerator Challegne, Economic Develop-
ment Administration website, available: http://www.eda.gov/
InvestmentsGrants/jobsandinnovationchallenge (last accessed
12/3/2011).
8 Small Business Administration Regions. National Association of Gov-
ernment Guaranteed Lenders, available at http://www.naggl.org/
Content/NavigationMenu/GuaranteedLending/SBARegionsMap/
SBA_Regions_Map.htm; Regional Oces. Economic Develop-
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States Department of Labor, available at http://www.doleta.gov/
regions/regoces/Pages/eta_default.cfm?CFID=2294190&CFTOK
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9 Budget, Defense Advanced Research Projects Agency, available at
http://www.darpa.mil/NewsEvents/Budget.aspx
10 Proposed Appropriation Language, Energy Transformation Accelera-
tion Fund Advanced Research Projects AgencyEnergy (ARPA-E),
available at http://arpa-e.energy.gov/LinkClick.aspx?leticket=FzuP
HgdX6r8%3d&tabid=184
11 Department of Energy Budget by Organization, available at http://
www.cfo.doe.gov/budget/12budget/Content/Orgsum.pdf
12 Ibid.
13 About Us, National Institute of Food and Agriculture, available
at http://www.csrees.usda.gov/qlinks/research.html; Education,
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csrees.usda.gov/nea/education/education.html ; FY 2011 Presidents
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14 Historical Tables, Oce of Management and Budget, The White
House, available at http://www.whitehouse.gov/omb/budget/His-
toricals
15 FY 2012 ED Budget Summary: Elementary and Secondary Educa-
tion, U.S. Department of Education, available at http://www2.
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n2a.html#e
16 C. Weller and L. Reidenbach, The Case for Strategic Export Promo-
tion, American Progress, Feb 2011, available: http://www.american-
progress.org/issues/2011/02/pdf/high_tech_trade.pdf
17 Economics: Innovation central to boosting growth and jobs,
Organisation for Economic Co-operation and Development, May
27, 2010, available at http://www.oecd.org/document/36/0,3343,
en_2649_37417_45324068_1_1_1_1,00.html
18 Arti rai, Stuart Graham, and Mark Doms, Patent reform: unleashing
Innovation, Promoting Economic Growth and Producing high-
Paying Jobs (Washington: Department of Commerce, 2010), avail-
able at http://2001-2009.commerce.gov/s/groups/public/@doc/@
os/@opa/documents/content/prod01_009147.pdf
19 FY 2011 Budget Summary and Performance Plan, U.S Department
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20 G. Jones, Community Planning and Development, 2010 Proposed
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Ppsd%20GGOB/Community%20Planning%20and%20Develop-
ment.pdf
21 Defense Budget, available at http://comptroller.defense.gov/
defbudget/fy2012/budget_justication/pdfs/01_Operation_and_
Maintenance/O_M_VOL_1_PARTS/O_M_VOL_1_BASE_PARTS/
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22 J. Erickson and S. Pool, Accelerating Regional Innovation and Job
Creation, American Progress, November 2011, available: http://
www.americanprogress.org/issues/2011/11/jobs_accelerator.html
23 Integration of Workforce and Regional Economic Development, U.S.
Department of Labor, available at http://www.doleta.gov/reports/
opdr/opdr_projects.cfm#CATEG1
24 Community-Based Job Training Grants, U.S. Department of Labor,
available at http://www.doleta.gov/business/Community-Based-
JobTrainingGrants.cfm
25 About WIRED, U.S. Department of Labor, available at http://www.
doleta.gov/wired/about/
26 Program & Funding Opportunities. EDA, available at http://www.
eda.gov/InvestmentsGrants/JobsAndInnovationChallengeFAQ_GI
27 What is Trade Adjustment Assistance?, Employment and Training
Administration, available at http://www.doleta.gov/tradeact/fact-
sheet.cfm
28 Ibid.
29 The Memorandum can be accessed online here: http://www.white-
house.gov/the-press-oce/2011/03/11/presidential-memorandum-
government-reform-competitiveness-and-innovation
30 FY 2011 Congressional Budget Justication and FY 2009 Annual
Performance Report, U.S. Small Business Administration, available at
http://www.sba.gov/sites/default/les/Congressional_Budget_Jus-
tication.pdf; Research Grants for Small Businesses, Small Business
Administration, available at http://www.sba.gov/content/research-
grants-small-businesses#each
31 Technology Innovation Program Homepage, National Institute of
Standards and Technology, available at http://www.nist.gov/tip/
32 Find Grant Opportunities, Grants.gov, available at http://www07.
grants.gov/search/search.do
58 Center for American Progress | Rewiring the Federal Government for Competitiveness
33 FY 2011 Congressional Budget Justication and FY 2009 Annual
Performance Report, U.S. Small Business Administration, available at
http://www.sba.gov/sites/default/les/Congressional_Budget_Jus-
tication.pdf; Research Grants for Small Businesses, Small Business
Administration, available at http://www.sba.gov/content/research-
grants-small-businesses#each
34 Ibid.
35 General Research and Technology Activity, Catalog of Federal Do-
mestic Assistance, available at https://www.cfda.gov/?s=program&
mode=form&tab=step1&id=591557f7744a9f5445353d133094cb92
36 FY 2012 Budget Request to Congress, National Science Founda-
tion, available at http://www.nsf.gov/about/budget/fy2012/pdf/
fy2012_rollup.pdf
37 8(a) Business Development. SBA, available at http://www.sba.gov/
content/8a-business-development-0#provides%20assistance;
Congressional Budget Justication, SBA.
38 Budget Summary, USDA.
39 Notice of Availability of Funds and Solicitation for Grant Applica-
tions for H-1B Technical Skills Training Grants, Employment and
Training Administration, Department of Labor, available at http://
www.doleta.gov/grants/pdf/SGA-DFA-PY-10-13_Final_H-1BSGA.pdf
40 H-1B Techical Skills Training Grants, Employment and Training
Administration, U.S. Department of Labor, available at http://www.
doleta.gov/business/H1B_Tech_Skills.cfm
41 Research and Evaluation Projects, Employment and Training Admin-
istration, U.S. Department of Labor, available at http://www.doleta.
gov/reports/opdr/opdr_projects.cfm; Budget Summary, FY 2011
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dol.gov/dol/budget/2011/bib.htm#summary
42 Whats New in Workforce Investment?, Employment and Training
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43 The Budget for Fiscal Year 2011, Executive Oce of the President
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Appendix /eop.pdf
44 International Trade Administration: Strategic Plan FY 2007-FY 2012,
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45 Market Access and Compliance. International Trade Administration,
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46 Import Administration. International Trade Administration, available
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47 U.S. Commercial Service. International Trade Administration, avail-
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48 Manufacturing and Services. International Trade Administration,
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49 Trade Policy and Programs. U.S. Department of State, available at
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50 Bilateral Trade Aairs. U.S. Department of State, available at http://
www.state.gov/e/eeb/tpp/bta
51 Intellectual Property Enforcement. U.S. Department of State, avail-
able at http://www.state.gov/e/eeb/tpp/ipe
52 Multilateral Trade Aairs. U.S. Department of State, available at
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53 Doing Business in International Markets, U.S. Department of State,
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54 Oce of Economic Policy Analysis and Public Diplomacy. U.S. De-
partment of State, available at http://www.state.gov/e/eeb/eppd/
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55 About the Bureau of Industry and Security, U.S. Department of
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56 Summary of Appropriations, U.S. Economic Development Adminis-
tration, available at http://www.osec.doc.gov/bmi/budget/FY12BIB/
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57 Mission, Export-Import Bank of the United States, available at
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58 S. Ilias, Export-Import Bank: Background and Legislative Issues
(Congressional Research Service, Feburary 9, 2011), available at
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59 Congressional Budget Justication of the U.S. Trade and Develop-
ment Agency: Fiscal Year 2011, available at http://www.ustda.gov/
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60 Budget Request: Fiscal Year 2009, Overseas Private Investment
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default/les/docs/fy2009_opic_congressional_budget_justication.
pdf
61 Executive Order-National Export Initiative,The White House, March
11, 2010, available at http://www.whitehouse.gov/the-press-oce/
executive-order-national-export-initiative
62 National Institute of Standards and Technology Appropriations
Summary, available at http://www.nist.gov/public_aairs/releases/
approps-summary2011.cfm
63 About the Manufacturing Partnership, Hollings Manufacturing
Extension Partnership, available at http://www.nist.gov/mep/about.
cfm
64 Fiscal Year 2012 Budget Request, National Telecommunications and
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budget/budget.htm
65 Summary of Appropriations, National Technical Information Service,
available at http://www.osec.doc.gov/bmi/budget/FY12BIB/NTIS.
pdf
66 Summary of Appropriations. U.S. Patent and Trademark Oce, avail-
able at http://www.osec.doc.gov/bmi/budget/FY12BIB/USPTO.pdf
67 A. Rai, Patent Reform and the Progress of Innovation (Washing-
ton: Science Progress, March 15, 2011), available at http://www.
scienceprogress.org/2011/03/patent-reform-and-the-progress-of-
innovation/
68 Summary of Appropriations, U.S. Economic Development Adminis-
tration, available at http://www.osec.doc.gov/bmi/budget/FY12BIB/
EDA.pdf
69 EDA programs, available at http://www.eda.gov/InvestmentsGrants/
Programs.xml
70 Summary of Appropriations, U.S. Economic Development Adminis-
tration, available at http://www.osec.doc.gov/bmi/budget/FY12BIB/
EDA.pdf
71 Ibid.
72 Ibid.
73 Ibid.
74 Ibid.
75 Ibid.
76 Ibid.
59 Center for American Progress | Rewiring the Federal Government for Competitiveness
77 Ibid.
78 Minority Business Development Agency, President Obamas 2012
Budget Supports Jobs and Growth within the Minority Business
Community, U.S. Department of Commerce, February 16, 2011,
available at http://www.mbda.gov/pressroom/press-releases/
president-obama-s-2012-budget-supports-jobs-and-growth-within-
minority-business-community
79 Summary of Appropriations, Minority Business Development
Agency, available at http://www.osec.doc.gov/bmi/budget/FY-
12BIB/MBDA.pdf
80 About RD, U.S. Department of Agriculture, available at http://www.
rurdev.usda.gov/AboutRD.html; FY 2011 Budget Summary and An-
nual Performance Plan, U.S. Department of Agriculture, available at
http://www.obpa.usda.gov/budsum/FY11budsum.pdf
81 Ibid.
82 Rural Business-Cooperative Service. (2010). 2011 Ex-
planatory Notes, USDA, available at http://www.obpa.usda.
gov/28rbs2011notes.pdf
83 FY 2011 Budget Summary, USDA; Business and Industry Guaranteed
Loans. USDA, available at http://www.rurdev.usda.gov/rbs/busp/
b&i_gar.htm
84 FY 2011 Budget Summary, USDA
85 White House Rural Council. (2011). Jobs and Economic Security for
Rural America,The White House, August 2011, available at http://
www.whitehouse.gov/sites/default/les/jobs_economic_secu-
rity_rural_america.pdf
86 Jones, 2009.
87 CPD Program and Initiative Index, U.S. Department of Housing and
Urban Development, available at http://www.hud.gov/oces/cpd/
about/cpd_programs.cfm
88 Oce of Economic Adjustment. Department of Defense, available at
http://www.oea.gov/; Defense Budget.
89 http://140.185.104.240/index.php?option=com_content&view=arti
cle&id=60&Itemid=55.
90 Defense Industry Adjustment. Department of Defense, available at
http://140.185.104.240/index.php?option=com_content&view=arti
cle&id=58&Itemid=52
91 FY 2012 Congressional Budget Justication Employment and Train-
ing Administration, U.S. Department of Labor, available at http://
www.dol.gov/dol/budget/2012/PDF/CBJ-2012-V1-03.pdf
92 Brief Descriptions of Program Line Items in ETA Budget, U.S. Depart-
ment of Labor, available at http://www.doleta.gov/budget/etapgms.
cfm#pdr
93 Mission Statement, Oce of Workforce Investment, U.S. Department
of Labor, available at http://www.doleta.gov/etainfo/wrksys/WIMis-
sion.cfm
94 FY 2012 Budget Justication, U.S. Department of Labor; Adult
Services, U.S. Department of Labor, available at http://www.doleta.
gov/programs/ETA_default.cfm?#Workforce; Workforce Investment
ActAdults and Dislocated Workers Program, U.S. Department of
Labor, available at http://www.doleta.gov/programs/general_info.
cfm; Youth Services, U.S. Department of Labor, available at http://
www.doleta.gov/Youth_services/about_oys.cfm
95 CareerOneStop, available at http://www.careeronestop.org/
96 Regional Oces, U.S. Department of Labor.
97 Oce of Policy Development and Research, U.S. Department of
Labor, available at http://www.doleta.gov/etainfo/opder/
98 What is Trade Adjustment Assistance?, Employment and Training
Administration, available at http://www.doleta.gov/tradeact/fact-
sheet.cfm
99 Ibid.
100 Program Details, U.S. Department of Labor, available at http://www.
doleta.gov/taaccct/
101 Job Corps, available at http://www.jobcorps.gov/Home.aspx
102 Oce of Apprenticeship, Employment and Training Administration,
U.S. Department of Labor, available at http://www.doleta.gov/oa/;
FY 2012 Budget Justication, U.S. Department of Labor
103 Registered Apprenticeship Regulations, Employment and Training
Administration, U.S. Department of Labor, available at http://www.
doleta.gov/oa/regulations.cfm
104 FY 2011 OPE Programs Budget Update, Oce of Postsecondary
Education, U.S. Department of Education, available at http://www2.
ed.gov/about/oces/list/ope/2011-program-budget.html
105 Oce of Postsecondary Education Homepage, U.S. Department of
Education, available at http://www2.ed.gov/about/oces/list/ope/
index.html?src=oc
106 Career and Technical Education, Oce of Vocational and Adult
Education, U.S. Department of Education, available at http://www2.
ed.gov/about/oces/list/ovae/pi/cte/index.html
107 Carl D. Perkins Career and Technical Education Act of 2006, U.S.
Department of Education, available at http://www2.ed.gov/policy/
sectech/leg/perkins/index.html
108 Advanced Technological Education (ATE), National Science
Foundation, available at http://www.nsf.gov/funding/pgm_summ.
jsp?pims_id=5464
109 Directorate for Education and Human Resources, National Science
Foundation, available at http://www.nsf.gov/about/budget/fy2012/
pdf/27_fy2012.pdf
110 Science, Technology, Engineering, and Mathematics Talent
Expansion Program (STEP), National Science Foundation, avail-
able at http://www.nsf.gov/funding/pgm_summ.jsp?pims_
id=5488&org=DUE&from=home
111 Transforming Undergraduate Education in Science, Technology,
Engineering and Mathematics (TUES), National Science Foundation,
available at http://www.nsf.gov/pubs/2010/nsf10544/nsf10544.htm
112 Math and Science Partnership (MSP), National Science Foundation,
available at http://www.nsf.gov/funding/pgm_summ.jsp?pims_
id=5756&org=DUE&from=home
113 Math and Science Partnership Network, available at http://hub.
mspnet.org/index.cfm
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About the Center for American Progress
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Americans are bound together by a common commitment to these values and we aspire to ensure
that our national policies reect these values. We work to nd progressive and pragmatic solutions
to signicant domestic and international problems and develop policy proposals that foster a
government that is of the people, by the people, and for the people.
About Doing What Works
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reform to eciently allocate scarce resources and achieve
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Economic Intelligence
Enhancing the Federal Statistical System
to Support U.S. Competitiveness
Andrew D. Reamer January 2012
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The second report in a series on U.S. science and economic competitiveness from the
Doing What Works and Science Progress projects at the Center for American Progress
About this series on U.S. science
and economic competitiveness
Te U.S. Congress in late 2010 asked the Department of Commerce to complete two studies as part
of the reauthorization of the America COMPETES Act. Te hrst, which was released on January 6th,
2012, at the Center for American Progress, focuses on U.S. competitiveness and innovation. Te sec-
ond, due to Congress in early 2013, oners specihc recommendations for developing a 10-year national
innovation and competitiveness strategy.
We applaud the commissioning of these reports but believe we cannot anord to wait that long to take
action. Tats why we convened in the spring of 2011 the group of experts listed on the following page.
We spent two days in wide-ranging discussion about the competitive strengths and weaknesses of our
nations scientihc endeavors and our economy, before seuling upon the topics that constitute the series
of reports we publish here. Each paper in the series looks at a dinerent pillar supporting U.S. science
and economic competitiveness in a globally competitive economy:
r
Rewiring the Federal Government for
Competitiveness
r
Economic Intelligence
r
Universities in Innovation Networks
r
Manufacturers in Innovation Networks
r
Building a Technically Skilled Workforce
r
Immigration for Innovation
Te end result, we believe, is a set of recommendations that the Obama administration and Congress
can adopt to help the United States retain its economic and innovation leadership and ensure that all
Americans have the opportunity to prosper and nourish now and well into the 21st century.
Many of our recommendations are sure to spark deep resistance in Washington, not least our proposal
to reform a number of federal agencies so that our government works more enectively and emciently in
the service of greater U.S. economic competiveness and innovation. Tis and other proposals are sure
to meet resistance on Capitol Hill, where dinerent congressional commiuees hold sway over diner-
ent federal agencies and their policy mandates. Tats why we open each of our reports with this one
overarching recommendation: Congress and President Obama should appoint a special commission to
recommend reforms that are packaged together for a single up-or-down vote in Congress. In this way,
thorough-going reform is assured.
Tis new commission may not adopt some of the proposals put forth in this series on science and
economic competitiveness. But we look forward to sharing our vision with policymakers as well as the
American people. President Obama gets it right when he says, To win the future, we will have to out-
innovate, out-educate, and out-build our competitor nations. We need to start now.
Coordinating editors for the series on U.S. science and economic competitiveness
Ed Paisley, Vice President, Editorial, American Progress
Gadi Dechter, Associate Director, Government Reform, Doing What Works
Sean Pool, Assistant Editor, Science Progress
American Progress taskforce on U.S. science and economic competitiveness
John Alic, science, technology, and economic policy
consultant and former stan member of the Congressional
Omce of Technology.
Joseph Bartlett, of counsel in Sullivan & Worcesters
corporate department and former undersecretary of
commerce at the U.S. Department of Commerce.
Maryann Feldman, S.K. Heninger distinguished chair in
public policy at the University of North Carolina, Chapel Hill.
Kate Gordon, VP for Energy Policy at the Center for
American Progress.
Michael Gurau, president, Clear Innovation Partners, a
venture capital investment hrm.
David Hart, director of the Center for Science and
Technology Policy at George Mason University School
of Public Policy.
Christopher Hill, professor of public policy and technol-
ogy at George Mason University School of Public Policy
and former vice provost for research at George Mason.
Neal Lane, senior fellow for science and technology
policy at Rice University and former advisor to the
president on science and technology policy.
Rachel Levinson, director of National Research Initiatives
at Arizona State University and former assistant director
for life sciences at the White House Omce of Science and
Technology Policy.
Jonathan Moreno, Editor-In-Chief of Science Progress
and Senior Fellow at the Center for American Progress.
Arti Rai, Elvin R. Lauy Professor of Law at Duke
University and former Administrator for External
Anairs, USPTO.
Andrew Reamer, research professor at the George
Washington University Institute of Public Policy and
non-resident senior fellow at the Brookings Institution.
RoseAnn B. Rosenthal, president and CEO, Ben
Franklin Technology Partners of Southeastern
Pennsylvania.
Jonathan Sallet, partner in the law hrm of OMelveny
& Myers LLP, Science Progress advisor, and former
director of the Omce of Policy and Strategic Planning
of the U.S. Department of Commerce.
Daniel Sarewiz, director of the Consortium for
Science, Policy, and Outcomes at Arizona State
University.
James Turner, Senior Counsel for Innovation &
Technology, and Director of Energy programs at the
Association of Public and Land-Grant Universities
and former professional stan and chief counsel for the
House Commiuee on Science and Technology.
William A. Wulf, professor of computer science at the
University of Virginia and former president of the
National Academy of Engineering.
Economic Intelligence
Enhancing the Federal Statistical System
to Support U.S. Competitiveness
Andrew D. Reamer January 2012
Contents 1 Introduction and summary
8 The place of federal statistics in competitiveness policy
13 Principles for producing federal statistics that
support competitiveness
16 Recommendations: a statistical reform agenda
to bolster U.S. competitiveness
34 Conclusion
35 About the author and acknowledgements
36 Endnotes
1 Center for American Progress | Economic Intelligence
In discussing about policy options for promoting U.S. economic competitiveness,
its unusual for anyone to consider producing beuer statistics. Grants, tax credits,
regulation, agency reorganizations, yes. But numbers? Te federal data system sits
like a large black box in a dark shadow. We know a few high-prohle stats shed light
on how were doing economically, such as GDP and unemployment, but most
everything else is opaque. We dont quite understand what else the system con-
tributes to economic policy or, to be honest, how it works. And so it may not be
immediately obvious how the statistical system could beuer support the nations
economic competitiveness.
Federal economic statistical agencies-particularly the Census Bureau, the
Bureau of Labor Statistics, and the Bureau of Economic Analysis-produce the
data that guide federal economic policy. For many decades, the primary focus of
federal economic policy has been managing the business cycle, that is, prevent-
ing recession and innation. Statistical agencies explicit priority, therefore, is to
provide the macroeconomic data to work the levers of hscal and monetary policy.
Even though U.S. competitiveness has become progressively more vulnerable
since the early 1980s, the federal government yet to construct a coherent, well-
integrated approach to addressing the global challenges to the nations economic
structure. Consequently, the statistical system hasnt been asked to come up with
the numbers that would support intelligent competitiveness policy.
What would those numbers look like? Federal competitiveness policy, if one
existed, would systematically identify and address barriers to the emcient func-
tioning of markets. Tese barriers contribute to what economists call market
failures that impede the ability of traded industries to successfully respond to
market issues and opportunities.
1
Distinct from the broad top-down orientation
of macroeconomic policy, federal competitiveness policy would involve more
bouom-up enorts aimed at improving the likelihood that market actors make
decisions that enhance competitiveness. Tese market participants include busi-
ness, research and education institutions, workers, and students, as well as thou-
Introduction and summary
2 Center for American Progress | Economic Intelligence
sands of public purpose organizations at all geographic levels, such as regional
economic and workforce development agencies.
Identifying and addressing market failures requires sumcient data on the structure
and competitiveness of key traded industries (number of jobs, productivity, interna-
tional trade), the building blocks of competitiveness (innovation, entrepreneurship),
the basic factors of hrm operations (workforce, hnance, research and development
expenditures), and the impacts of public programs that support hrm competitive-
ness. Te private sector does not have the capability to provide the numbers needed
to assess and enhance the nations competitiveness. But the federal government
does, at a remarkably low cost. Its current annual cost to track the workings of a $14
trillion economy is about $1.7 billion.
2
Additional statistical funds needed to sup-
port competitiveness policies would bring the total closer to $2 billion.
And yet the U.S. statistical system

doesnt produce the numbers needed to assess
and guide national competitiveness. In the absence of a coherent approach to
federal competitiveness policy, statistical agencies continue to give priority to the
data needs of macroeconomic policy. Te production and analysis of competi-
tiveness-relevant data are further crimped by inadequate congressional funding,
lack of understanding of data user needs, lack of coordination and collaboration
among agencies, insumcient encouragement to be innovative, and outside ana-
lysts dimculties in gaining access to and working with the data.
Consider:
r
Te Census Bureau and the Bureau of Labor Statistics cannot provide measures of
industry size that are consistent with one another in terms of jobs and earnings.
r
BLS says it overestimates growth in manufacturing productivity, a key dimension
of competitiveness, because it has dimculty properly accounting for shins in
obtaining manufacturing inputs from domestic to foreign sources.
r
Te federal government lacks comprehensive, useful measures of innovation activity.
r
It also does not have adequate data on entrepreneurs access to capital.
r
Te Bureau of Economic Analysis no longer publishes detailed data by state
on foreign direct investment. As a result, states, and the presidents own
SelectUSA initiative, are working in the dark as they try to auract foreign-
owned hrms to these shores.
3 Center for American Progress | Economic Intelligence
r
Regional development agencies cannot see business R&D activity by
metropolitan area.
r
Educational institutions cant hnd regional jobs data that would let them oner
credential programs that match employer demand.
Principles
To provide the data needed for competitiveness policy, the federal economic
statistical system should adhere to hve principles:

8c dcmand-dr|rcn. Te federal economic statistical system should be responsive
to the decision-making needs of the wide array of actors that innuence eco-
nomic competitiveness, including those in the Federal government, at the state
and regional level, in industry, and in the workforce.

8c |nnorat|rc. Federal statistical agencies should develop innovative cost-em-
cient approaches to producing data needed for competitiveness policy.

8c co||a|orat|rc. Te White House Interagency Council on Statistical Policy
should create an interagency working group on competitiveness statistics to
develop and implement a common agenda.

8c acccss|||c. Federal agencies should construct web-based platforms that
allow easy access to, and customized building of, data tables. Further, agencies
should provide researchers access to microdata (individual records), while
protecting conhdentiality, so that they may explore the factors that innuence
competitiveness.

8c suc|cnt|y jundcd. If federal agencies are to obtain adequate funding, they
must beuer educate policymakers about the importance of their data products
to the economy.
Recommendations
Puuing these principles into action, the federal government should improve
economic statistical programs to beuer support competitiveness by facilitating
4 Center for American Progress | Economic Intelligence
analysis of traded sectors, the intermediate outcomes that determine competitive-
ness (innovation, entrepreneurship), the underlying factors of competitiveness
(R&D expenditures, workforce), and program impacts. Te relative cost of these
recommendations is minimal compared to their substantial potential long-term
impacts on jobs, wages, and government revenues in a $14 trillion economy.
Improving traded sector analysis
Problem: Economic analysts lack access to data needed to assess the competitive-
ness of key traded industries.
Solutions:
r
In order to make economic data consistent across the government, Congress
should pass a law allowing the Census Bureau to share IRS-derived business
data with BLS and BEA.
r
Te Omce of Management and Budget should revamp the North American
Industrial Classihcation System, or NAICS, so that analysts can see data on
all the establishments involved in a particular industry sector. At present, for
example, General Motors headquarters is classihed in the management indus-
try, not the automobile manufacturing.
r
Te Department of Labor should request, and Congress should approve,
funds for BLS to create an input price index to more accurately measure
manufacturing productivity.
r
Te Census Bureaus Center for Economic Studies should implement the low-
cost, high-impact planned expansion of its Longitudinal Business Database,
or LBD, by incorporating new datasets from other sources, including those on
patents, foreign direct investment, imports and exports, and management and
organizational practices.
r
Te Labor Departments BLS and Employment and Training Administration
should work together to implement a new classihcation typology, business pro-
cesses, to all business establishments.
5 Center for American Progress | Economic Intelligence
r
Te Securities and Exchange Commission should implement its contemplated bulk
download tool that would allow researchers access to the full set of hrm SEC hlings.
r
Congress should fund BEA to organize economic data by legal organization
of hrm (i.e., C corporations, S corporations, partnerships, and sole proprietor-
ships), at a cost of about $1 million or less.
r
Congress should provide $3 million for BEA to improve its collection of foreign
direct investment data.
r
Congress should take steps that allow BEA to carry out its proposed improve-
ments in trade in services statistics.
r
Te Department of Labor should request, and Congress should provide, the
small amount of funds required by the BLS to build import and export price
indices that fully cover traded services.
r
Federal statistical agencies should collaboratively explore ways of building a
technology balance of payments measure for the U.S.
r
Te Department of Labor should request, and Congress should provide, the small
amount of funds that would allow BLS to create a foreign currency price index.
r
Congress should see that BEA has the funds to produce price indices that allow
comparison of the costs of doing business across U.S. regions.
Improving measures of intermediate outcomes that influence
competitiveness
Problem: Federal statistical agencies do not provide adequate measures of
intermediate outcomes that innuence competitiveness, particularly innovation,
entrepreneurship, and relationships between organizations.
Solutions:
r
BEA and the National Science Foundations National Center for Science and
Engineering Statistics should co-lead an interagency working group to coordi-
nate disparate enorts to develop and implement measures of innovation activity.
6 Center for American Progress | Economic Intelligence
r
Te Census Bureau and BLS should take the steps necessary to make their
longitudinal business databases-Business Dynamics Statistics and Business
Employment Dynamics -more useful to researchers and policymakers in iden-
tifying the role of entrepreneurship in national and regional competitiveness.
r
Te Commerce Departments Economic Development Administration should
take the lead in seeing that the federal economic statistical system enables regional
economic development organizations to identify and analyze intra-cluster rela-
tionships and determine the implications of these for regional competitiveness.
r
Congress should provide the Census Bureau with funds sumcient to conduct
the 2012 Economic Census.
Improving factor analysis

Problem: Te federal statistical system does not provide sumcient data regarding
the factors that innuence competitiveness, including R&D expenditures,
workforce, education and training, business hnance, and energy.
Solutions:
r
Te National Center for Science and Engineering Statistics should provide a
current, complete, detailed picture of R&D expenditures for the nation, states,
and regions.
r
NCSES also should expand its analysis of science and engineering workforce
and so-called STEM (science, technology, engineering, and math) education to
include workers with less than a baccalaureate degree.
r
Te Department of Labor should request, and Congress should approve, fund-
ing that would allow BLS to improve state and regional labor market data, par-
ticularly on occupations and labor turnover, and retain the International Labor
Comparisons program.
r
Te Department of Labor should request, and Congress should approve, fund-
ing that would allow the Employment and Training Administration to improve
the accuracy and detail of the O*NET occupational classihcation database and
support state-level workforce information programs and decisions tools.
7 Center for American Progress | Economic Intelligence
r
Te Education Departments National Center for Education Statistics should seek,
and Congress should approve, continued funding for data programs that track post-
secondary educational activity, credential auainment, and workforce outcomes.
r
Te Census Bureau should implement its planned Local Employment
Dynamics program job-to-job nows tool.
r
Te Secretary of Labor should expand Workforce Information Council member-
ship to include all federal statistical agencies providing workforce and education
data and representatives of their state counterparts. Members of the new WIC
should collaborate to identify and address labor market information failures.
r
Te Small Business Administration should convene and lead an interagency
working group to identify and address the needs for small business hnance data.
r
Congress should provide $1.2 million to BEA to create a satellite account that
measures the role of the energy industry in the economy and its impacts on
economic activity.
Improve evaluation of competitiveness programs
Problem: Federal, state, and regional competitiveness-related program agencies
lack data on the impacts of their programs.
Solution: Te Census Bureau should create a program to use the Longitudinal
Business Database to assess the impact of program support to individual hrms in
terms of survival, revenues, jobs, wages, exports, innovation, and other outcomes
related to competitiveness.
8 Center for American Progress | Economic Intelligence
The place of federal statistics
in competitiveness policy


Te federal government has been in the numbers business from its beginning-
the U.S. Constitution requires the decennial population census. And the govern-
ment quickly understood that statistics were important to help frame economic
policy. By 1810, it was gathering data on the nations agricultural and nascent
manufacturing sectors. Federal enorts to get hrm information to comprehend
the U.S. industrial structure continued throughout the 1800s. Increasingly, trade
data were systematically collected. Te gathering of labor force data began toward
the centurys end. By the late 19
th
and early 20
th
centuries, Congress was creating
governmental units dedicated to the collection of data that inform policy, such as
the Bureau of Labor Statistics and the Census Bureau.
Te Great Depression gave rise to remarkable methodological advances and
sophisticated institutional developments with the aim of ensuring that the
nation never again would endure the pain of a deep trough in the business cycle.
Measures such as gross domestic product and the unemployment rate and
methods such as statistical sampling and rudimentary computer analysis came
out of a determination that social science would tame economic gyrations. Te
Employment Act of 1946 framed the institutional structure we have today: Te
Census Bureau, BLS, and what is now BEA generate the numbers that allow
macroeconomists in the White House, the Federal Reserve, and the Treasury
Department to shape hscal and monetary policy.
When properly implemented and coupled with adequate regulation of hnancial mar-
kets, this 65 year-old data-based approach to economic policy has served the United
States very well. In particular, it provided the foundation for the nations remarkable
increase in economic prosperity in the three decades following World War II.
Times change. Unfortunately, the nations approach to economic policy-and the
statistical policy that undergirds that approach-havent kept pace. In the imme-
diate postwar years, the U.S. didnt need to worry about economic competitive-
ness and innovation. With a lead that seemed unassailable, and the trauma of the
9 Center for American Progress | Economic Intelligence
Depression and postwar innation fresh, economic policy largely concerned itself
with managing the business cycle and sustaining the conditions that would allow
business and industries to nourish. Since the early 1980s, though, the U.S. com-
petitiveness position has become progressively more vulnerable. And yet, in con-
trast to the postwar system for taming the business cycle, the federal government
has not built a coherent, well-integrated approach to addressing the challenges of
economic structure. Consequently, the statistical system hasnt been asked in a
thoughtful, comprehensive way to come up with the numbers that would support
intelligent competitiveness policy.
A federal statistical system that facilitates economic competitiveness requires a dif-
ferent, broader orientation than its traditional focus on serving federal customers.
Macroeconomic policy is top-down, developed and implemented by the president,
Congress, and a small number of experts in a handful of federal agencies. It is analo-
gous to Newtonian physics, with the economy seen as a machine, and economic
wizards working the levers of hscal and monetary policy to bring about smooth
operation. Te explicit priority for the Census Bureau, BLS, BEA, and a few other
data agencies is to produce the Principal Federal Economic Indicators of the cur-
rent condition and direction of the economy required by the wizard lever-pullers.
3
Since the 1960s, the statistical systems second priority is publishing state and
local economic numbers to determine the geographic distribution of federal
domestic assistance program monies in realms such as workforce, transportation,
housing, health care, education, and criminal justice. Tis also renects a mechani-
cal social science-based approach to drive funds to the places of greatest need.
Te nations competitiveness, on the other hand, cannot be directed in a top-
down manner. Competitiveness stems from the day-to-day decisions by:
r
Entrepreneurs to start hrms,
r
Businesses to invest in R&D, bring new products to market, choose operating
sites, and train workers,
r
Education and training institutions on the nature and size of credential
program onerings,
r
Research institutions on the focus of study,
r
Workers to upgrade their skills, and
r
Students to choose a career path.
A federal statistical
system that
facilitates economic
competitiveness
requires a dierent,
broader orientation
than its traditional
focus on serving
federal customers.
10 Center for American Progress | Economic Intelligence
Competitiveness also depends on the relationships among these various actors
within economic regions, individual industries, and the intersection of place and
industry in so-called regional clusters. As a result, state governments, regional public
purpose organizations in economic, workforce and technology development, and
industry and professional associations have important roles to play as well.
A numerous, disparate, uncoordinated set of federal program agencies-such as
the Economic Development Administration, the Small Business Administration,
the Employment and Training Administration, the International Trade
Administration, and the National Science Foundation-seek to stimulate and
catalyze market actor behaviors that enhance competitiveness, but not one has
sumcient top down innuence similar to the Federal Reserve for monetary policy
or Congress for hscal policy.
In reality, U.S. economic competitiveness emerges from a highly complex, adap-
tive economic system that is more analogous to quantum than Newtonian physics,
with billions of seen and unseen elements, large uncertainties about how they
work together and the exact innuences of policy interventions, and major doses of
serendipity. Enective competitiveness policies require the government to identify
and address market barriers that prevent U.S. actors from enectively responding
to global economic forces. Collectively, such policies would include traditional
top-down enorts with an innovative series of bouom up ones-such as promot-
ing the development of regional cluster organizations-aimed at improving the
probabilities that several hundred million market actors and thousands of public
purpose organizations make decisions that enhance competitiveness.
4

Such decisions depend on access to relevant, accurate information, including
statistics. Poor information causes misguided decisions that lead to less competi-
tive products and services, workers without the skills needed by businesses, and
research investments that bypass market opportunities.
The federal role
Te federal government has an essential role to play in the production of statistics
that lead to beuer decisions related to competitiveness.
r
Only the federal government has the resources, authority, and inclination to
produce data that are objective, reliable, and relevant to policy needs, consistent
over space and time, and freely accessible to users.
11 Center for American Progress | Economic Intelligence
r
Te entire annual cost of the economic statistical system to inform and guide
the workings of a $14 trillion economy is less than $2 billion. In contrast, in
2010, the value of grants for employment, education, and training was $97 bil-
lion; federal transportation grants to state and local governments, $61 billion,
and research tax expenditures, $40 billion.
r
Public data are a highly emcient public good, accessible over and over to an
inhnite number of users.
r
Dramatic changes in information technology over the past 15 years allow the
federal government to analyze enormous volumes of data at very low cost and
provide millions of users with direct, on-line, customized access to these data
in formats that are easily manipulated. In the pre-Internet age, it was dimcult to
readily provide substantial volumes of data to anyone other than a small number
of federal customers. Public access was limited to press releases of Principal
Federal Economic Indicators and a handful of tables and monthly periodicals
and annual volumes available for purchase or at libraries; data analysis was costly
and labor-intensive.
r
A number of federal statistical agencies are developing innovative tools that
allow analysts to look at the dynamics of the economy (such as the paths
people take through the education system and job markets) in ways not before
possible. Analysis of the dynamics of education and employment, for instance,
will allow education and training institutions to beuer meet business needs
for skilled workers.
r
Te governments options for providing researcher access to large databases of
individual records, while fully protecting conhdentiality, have greatly expanded.
Greater researcher access to microdata means that understanding of the factors
that lead to competitiveness can increase.
Te federal economic statistical system, then, provides an enective, adaptable,
mechanism for addressing information market failures related to competitiveness,
at very low cost and with economic and hscal returns orders of magnitude greater
than taxpayer investment. Tese characteristics are particularly important at this
moment of economic dimculty and budget constraints.
12 Center for American Progress | Economic Intelligence
Principal federal statistical agencies that provide data supporting
competitiveness include:
t The Census Bureau (Department of Commerce) regularly
collects data on individual rms on to build a picture
of economic activity by industry. It elds the American
Community Survey, which gathers valuable information on
worker characteristics such as occupation and education. And
it has several longitudinal databases that allow researchers to
track rm and workforce activity over time.
t The Bureau of Labor Statistics (Department of Labor) produces
numbers on employment and earnings (by industry and
occupation) and productivity. BLS and Census co-manage the
Current Population Survey, which provides detailed data on
workforce characteristics.
t The Bureau of Economic Analysis (Department of Commerce)
maintains the national economic accounts, which allows it
to produce gures such as gross domestic product, total jobs
(including self-employed), and foreign investment in the
United States.
t The Federal Reserve publishes gures on industrial capacity
and ow of funds.
t The National Center for Science and Engineering Statistics
(National Science Foundation) traditionally has published
key science and engineering (S&E) indicators and data on
R&D and S&E workforce. Congress has asked it to look at
innovation data as well.
t The National Center for Education Statistics (Department of
Education) produces numbers on postsecondary enrollments
and degrees. With NCES funds, states are in the early stages of
building longitudinal data systems that will track the workforce
outcomes of individual educational programs.
t The Economic Research Service (USDA) publishes information
on economic activity by type of geography (rural/urban).
In addition, a number of other federal agencies provide
important competitiveness-related statistical resources.
t The Small Business Administration publishes numbers on the
role of small business and entrepreneurship in the economy.
t The Employment and Training Administration (Department
of Labor) manages the occupational classication system and
funds states to produce occupational projections and labor
market analyses.
t The U.S. Patent and Trademark Oce (Department of
Commerce) provides detailed numbers on patent and
trademark activity.
t The Economic Development Administration (Department of
Commerce) is building a clusters map of the United States.
t The Securities and Exchange Commission makes available SEC
document lings, a rich source of rm-specic information. It is
considering building a tool to allow bulk downloading of les.
Text analysis of such les could lead to a rich picture of public
rm characteristics by industry.
Federal statistical agencies that support competitiveness
13 Center for American Progress | Economic Intelligence
Principles for producing
federal statistics that
support competitiveness


Tis section lays out principles of approach and broad recommendations for pro-
ducing the federal statistics needed to facilitate U.S. competitiveness. Te section
following this one will oner recommendations for individual programs.
Be demand-driven
Te federal economic statistical system should be responsive to the decision-making
needs of public- and private-sector actors who innuence economic competitiveness.
Federal economic statistical agencies have dimculty responding to the data needs
and demands of the broad array of public- and private-sector actors involved in
competitiveness activities, particularly those at the state and regional level, in
industry, and in the workforce. With an historic focus on serving federal cus-
tomers, statistical agencies tend to have a culture of supply-driven production
shops. Tey need to mirror the characteristics of market-based organizations that
successfully respond to the challenges of competitiveness-develop relationships
with users, monitor their needs as they evolve over time, and provide products
and services that address those needs.
Be innovative
Federal statistical agencies should develop innovative cost-emcient approaches to
producing competitiveness-related data.
Federal agencies have traditionally relied on business and household surveys to
gather data. Rising costs and falling response rates make reliance on such surveys
increasingly less desirable. At the same time advances in information technology
14 Center for American Progress | Economic Intelligence
now make it easier to analyze existing administrative records. For example, we
now can conduct low-cost analysis of enormous volumes of administrative data,
such as jobs and wage data in state unemployment insurance systems. We can
more easily integrate administrative data from dinerent sources, such as the
Census Bureau and U.S. Patent and Trademark Omce. And we can more readily
use nationwide private databases, such as Dun & Bradstreet company information
or electronic job listings, for public policy purposes.
Statistical agencies should continue to demonstrate their use of advanced technolo-
gies and methods, such as building longitudinal databases. Further, they should
make more active use of administrative data, including those from non-federal
sources. As suggested by Alan Krueger, recently appointed as chair of the White
House Council of Economic Advisers, statistical agencies should consider certifying
non-federal data sources that they believe are reliable.
5
Be collaborative
Te White House Interagency Council on Statistical Policy should create an
interagency working group on competitiveness statistics to develop and imple-
ment a common agenda.
In the decentralized federal statistical system, a number of agencies produce
statistics that are valuable to competitiveness. (See box, page 12). However, we
lack a common understanding of what federal data are needed for competitive-
ness policy, what data are available, and what should be done to hll the gaps.
Moreover, it is dimcult to compare and integrate data across agencies due to dif-
ferences in dehnitions, classihcation, coverage, and units of geographic analysis.
To assess competitiveness, data and indicators also should be comparable to
those from other nations.
Ex omcio members of the interagency working group on competitiveness data
should include federal agencies that design and implement competitiveness
policies. Among these agencies are the National Economic Council, the Federal
Reserve, the International Trade Administration, the Economic Development
Administration, and the Employment and Training Administration.
Statistical agencies
should continue
to demonstrate
their use of
advanced
technologies
and methods,
such as building
longitudinal
databases.
15 Center for American Progress | Economic Intelligence
Be accessible
Federal statistical agencies should construct web-based platforms that give users
ready access to data and allow them to build customized tables. Further, agencies
should provide researchers with access to microdata (individual records) so that
they may explore the factors that innuence competitiveness.
In light of the complexities of competitiveness, data users involved in policy, busi-
ness, and research require the capacity to easily custom-build data tables via the
web rather than rely on static, agency-produced ones. Further, given the lack of
knowledge about the dynamics of competitiveness, researchers need the ability to
analyze microdata, with conhdentiality protections. However, agencies are quite
uneven in providing these capacities.
A variety of tools are available for constructing microdata bases that protect
conhdentiality, such as public-use microdata hles, microdata with noise, and
synthetic microdata.
6
Be sufficiently funded
Federal agencies must beuer educate policymakers about the economic impor-
tance of their data products, and the very high return on taxpayer investment, if
they hope to be adequately funded.
Meeting user needs requires sumcient funding. As noted earlier, the annual cost of
the entire economic statistical system is quite small, both in relative terms (under
$2 billion) and in light of the substantial value it provides (supporting public
and private decisions across a $14 trillion economy). Despite this, senior execu-
tive and legislative branch budget decision-makers tend not to accord economic
statistical programs the funding priority they deserve. Tis is due largely to a lack
of awareness regarding the systems low cost and high benehts.
Agencies should describe the substantial return on taxpayer investment in
statistics, in part by gathering such information through federal performance
measurement activities.
16 Center for American Progress | Economic Intelligence
Recommendations: a statistical
reform agenda to bolster
U.S. competitiveness


Te recommendations in this section are organized around four categories:
r
Te hrst category includes enorts to improve competitive analysis of U.S. traded
industries, the ones that compete with establishments located outside the U.S.
r
Te second category includes enorts to beuer measure the intermediate out-
comes that determine competitiveness, including the dimensions of innovation,
entrepreneurship, and relationships between organizations.
r
Te third category includes enorts to beuer assess the factors that provide the
foundation for competitiveness, including workforce, R&D, hnancial capital,
physical infrastructure, and energy.
r
Te fourth category covers enorts to evaluate the impacts of public program
investments on competitiveness.
Where possible, costs of specihc recommendations are identihed. Te authors
understanding is that every recommendation for a new budget initiative would
cost under $6 million (and many well under that), with two exceptions. In light
of the federal budget situation, it is important to note that the additional cost of
these recommendations to the federal budget, about $200 million-$250 million in
total, is small compared to their substantial potential long-term impacts on jobs,
wages, and government revenues in a $14 trillion economy.
17 Center for American Progress | Economic Intelligence
Traded sector analysis

Problem
Economic analysts lack access to data needed to describe and assess
the competitiveness of key traded industries
Federal statistical agencies today do not provide the data that allow economic
analysts to accurately identify and assess those industries that are fully or partially
traded, that is, compete with foreign-based establishments.
7
Further, statistical
agencies do not oner adequate data on the geography of the U.S. traded sector,
particularly traded industry clusters.

Solutions
NAICS industry classification
Te identihcation and assessment of traded industries is done on the basis of
the classihcation of individual establishments according to the North American
Industry Classihcation System (NAICS).
8
Te federal data system needs to provide
a clear NAICS-based picture of the size and characteristics of key traded industries.
Congrcss s|ou|d pass a |a a||o|ng t|c Ccnsus 8urcau to s|arc |kS-dcr|rcd |us|ncss
data |t| ot|cr cconom|c stat|st|ca| agcnc|cs.
Te Census Bureau and the Bureau of Labor Statistics maintain completely
independent business lists that diner substantially by industry classihcation, jobs
per establishment, payroll per establishment, and even if a hrm is single- or multi-
establishment.
9
As a result, it is dimcult to obtain a clear, consistent picture of U.S.
industrial structure. Tis situation arises because under current law, the Census
Bureau is not allowed to show its establishment-specihc data to BLS because
those data are in part drawn from IRS sources.
Te Bush and Obama administrations have worked diligently with Congress to
cran, and gain support for, a law that allows the Census Bureau to share IRS-based
data with other federal economic statistical agencies. Passage of a data synchroni-
zation law is essential for competitiveness policy. In addition to making possible
one consistent picture of U.S. economic structure, the proposed law would let
the Bureau of Economic Analysis produce quarterly GDP by industry (currently
annual only) and beuer data on innovation and self-employment. A new law also
Congress should
pass a law allowing
the Census Bureau
to share IRS-
derived business
data with other
economic statistical
agencies.
18 Center for American Progress | Economic Intelligence
would enable BLS to improve its producer price indices. Tere is no cost to imple-
menting this recommendation.
OM8 s|ou|d rcramp NA|CS so t|at ana|ysts can scc data on a|| t|c csta|||s|mcnts
|n a part|cu|ar |ndustry scctor.
Unlike its predecessor Standard Industrial Classihcation (SIC) system, NAICS
classihes each establishment by its function, not the industry it serves. So,
for instance, the headquarters of an automaker is classihed as being part of
the Management of Companies and Enterprises industry, not manufactur-
ing. Similarly, an automakers warehouse is classihed under Warehousing and
Storage. Its therefore dimcult to obtain a clear count of the number of jobs actu-
ally in each industry. OMB should consider reverting to a classihcation scheme
that would allow analysts to count all jobs and wages tied to industries, distinct
from functions. (see box)
The Bureau of Economic Analysis says that in 2000 the Detroit
metropolitan area had 467,000 manufacturing jobs, according
to the SIC system, and that in 2001 the area had 371,000
manufacturing jobs, according to NAICS, a decrease of 97,000.
In 2001, the region also had 44,000 jobs in the management of
companies and enterprises, a category that did not exist in 2000.
Other SIC manufacturing jobs shifted to NAICS categories such as
transportation and warehousing.
In contrast, the Bureau of Labor Statistics shows a NAICS-consistent
change in manufacturing jobs of 392,000 to 359,000 between 2000
and 2001, a 32,000 job decline (BLS converted SIC data to NAICS back
to 1990). BEA data include the self-employed, which tends to make
its numbers a bit higher. That BEAs job decline number is three times
that for BLS can be attributed to the classication change.
Under NAICS, then, it is now not possible to know how many jobs in
the Detroit region are actually tied to the manufacturing industry.
How many manufacturing-related jobs does Detroit have?
Productivity
c Lcpartmcnt oj La|or s|ou|d rcqucst and. Congrcss s|ou|d approrc. t|c sma|| amount
oj moncy nccdcd |y 8LS to morc accuratc|y mcasurc manujactur|ng product|r|ty.
Accurate productivity and value-added measures are essential to competitiveness
policy. However, economists have discovered, and BLS concurs, that the agency
is overestimating manufacturing productivity growth by 10 percent to 20 percent
19 Center for American Progress | Economic Intelligence
because it incorrectly auributes to greater productivity the drops in input prices
that occur when a manufacturer shins from a domestic to foreign supply source.
10

Tis appears to be a particular problem for the U.S. computer industry, accord-
ing to the Information Technology and Innovation Foundation.
11
BLS proposes
to correct it by creating an input price index that dinerentiates between U.S. and
foreign suppliers. (see box)
Michael Mandel and Susan Houseman, in their recent McKinsey
and Company report titled Not all productivity gains are the same.
Heres why, provide an illustration of our mismeasurement of indus-
trial productivity and its consequences. Suppose a U.S. automaker
imports one million parts from a Japan-based supplier at $10 per
part, for a total import bill of $10 million. Consider two scenarios:
Scenario 1: The U.S. automaker improves its production process in
its domestic factories, so it only needs half as many components.
The import bill goes down to $5 million.
Scenario 2: The U.S. automaker switches to a China-based supplier
that only charges $5 per part. The import bill goes down to $5 million.
Surprisingly, these two scenarios are indistinguishable in the U.S.
economic statistics. In both scenarios, the import bill goes down
to $5 million. The value added of the U.S. auto company goes up
(sales minus the cost of materials), as does its protability (sales
minus cost of labor and materials) and measured productivity (value
added per worker).
In order to tell the two scenarios apart, Washington statisticians
would have to be looking at a set of gures that told them that a part
imported from China is priced at half as much as the equivalent part
imported from Japan. But no such comparative data existthe Bureau
of Labor Statistics collects data on price changes of Chinese imports
and Japanese imports, but does not compare the two levels.
12
Mismeasuring industrial productivity
Firm and establishment information
Existing datasets on hrm characteristics are inadequate for competitiveness policy.
Certain data are not now collected and existing datasets are insumciently integrated.
c Ccnsus 8urcau's Ccntcr jor Lconom|c Stud|cs s|ou|d |mp|cmcnt |ts p|anncd
|o-cost. ||g|-|mpact cxpans|on oj t|c Long|tud|na| 8us|ncss Lata|asc (L8L) t|at
|ncorporatcs nc datascts om ot|cr sourccs. |nc|ud|ng t|osc on patcnts. jorc|gn d|rcct
|nrcstmcnt. |mports and cxports. and managcmcnt and organ|zat|ona| pract|ccs.
Tis enriched database would facilitate more sophisticated analyses of the
factors behind competitiveness. Costs for integrating existing data into the
LBD are minimal.
20 Center for American Progress | Economic Intelligence
8LS and t|c Lmp|oymcnt and 1ra|n|ng Adm|n|strat|on (L1A) s|ou|d or| togct|cr to
app|y a nc c|ass|cat|on typo|ogy oj |us|ncss proccsscs to |nd|r|dua| csta|||s|mcnts.
At present, BLS uses a business process typology to classify establishments
involved in mass layons. Tere are eight types of processes, such as strategic man-
agement, operations, and product development.
13
Te capacity to describe U.S.
traded industry activity by processes would be a large boon to competitiveness
analysis. With the cooperation of ETA, this classihcation could take place simulta-
neously with industry classihcation, that is, when an establishment joins the state
unemployment insurance (UI) system. Aner startup, the costs of implementing
this new system are minimal.
c Sccur|t|cs and Lxc|angc Comm|ss|on s|ou|d |mp|cmcnt |ts contcmp|atcd |u||
don|oad too| t|at ou|d a||o rcscarc|crs acccss to t|c ju|| sct oj rm SLC ||ngs.
Text analyses of these public data would greatly enrich understanding of hrm and
establishment characteristics and their impacts on competitiveness. Tis tool has
the potential to be self-funded through user fees.
14
Congrcss s|ou|d jund 8LA to organ|zc cconom|c data |y |cga| organ|zat|on oj rm.
suc| as C corporat|ons. S corporat|ons. partncrs||ps. and so|c propr|ctors||ps.
Such data would be available by industry. Tis would be a low-cost way-about
$1 million or less-to add a new dimension to understanding of the structure
of U.S. traded industries. While BEA proposed this work in its FY2012 budget
request, Congress did not fund the idea.
15

Congrcss s|ou|d appropr|atc S m||||on to 8LA to |mprorc |ts co||cct|on oj jorc|gn
d|rcct |nrcstmcnt data.
For many years, BEA collected state-level detail on foreign direct investment, par-
ticularly concerning manufacturing, gross property plant and equipment, and com-
mercial property. However, this detail was eliminated under 2008 budget cuts. As a
result, according to the State International Development Organizations, individual
states are hampered in their ability to auract foreign hrms.
16
Further, the Commerce
Departments new SelectUSA Initiative, a cooperative enort with state governments
to auract foreign employers, will be hobbled without adequate state-level data.
17

21 Center for American Progress | Economic Intelligence
BEA should get funding to restore state-level detail, particularly for manufactur-
ing, and distinguish between foreign direct investment involving new construc-
tion (greenheld) and that involving acquisition.
18
International trade
While the quality and detail of U.S. trade numbers have improved in recent years,
insumcient information exists regarding trade in services, a substantial and grow-
ing dimension of competitiveness.
Congrcss s|ou|d cna||c 8LA to |mprorc stat|st|cs on tradc |n scrr|ccs.
As mandated by the American Recovery and Reinvestment Act, the Commerce
Department in January 2010 reported to Congress on the state of statistics on U.S.
trade in services.
19
Te report proposed a series of steps that BEA would take to
address dehciencies these statistics. Among the improvements proposed are:
r
Adding new information on insurance, hnancial services, computer sonware,
and manufacturing services, in line with international trade data standards
r
Expanding existing surveys to collect data on U.S. hrm operating characteristics
and purchases of services from U.S. and foreign suppliers
r
Incorporating business characteristics from existing Census surveys
r
Increasing survey coverage of small hrms
r
Ensuring that the BEA sampling frame is consistent with the Census Bureaus
Economic Census
r
Using existing data to determine the origins of imported services, for example,
intrahrm trades and outsourcing by U.S.-based hrms
According to the Commerce Department report, full implementation of these
recommendations requires a small investment of resources and Congressional
passage of a data synchronization law allowing the Census Bureau to share data
with IRS components with BEA.
Congress should
enable BEA
to improve
statistics on trade
in services.
22 Center for American Progress | Economic Intelligence
c Lcpartmcnt oj La|or s|ou|d rcqucst. Congrcss s|ou|d pror|dc. t|c sma|| amount
oj junds rcqu|rcd |y t|c 8LS to |u||d |mport and cxport pr|cc |nd|ccs t|at ju||y corcr
tradcd scrr|ccs.
Te above-referenced Commerce Department report indicates that very limited
information is available on price trends of U.S. exports and imports of services, mak-
ing competitiveness analyses dimcult. Te BLS International Price Program (IPP)
now only covers air passenger fares and air freight charges, amounting to 11 percent
of U.S. imports of private services and 7 percent of U.S. exports of private services.
Because of hscal year 2008 budget cuts, BLS was forced to drop coverage of prices
of export travel and tourism, crude oil, ocean liner freight, and postsecondary edu-
cation (foreign students coming to the U.S.). Prior to these cuts, IPP still covered
only 20 percent of imported services and 35 percent of exported services.
A full set of trade in services price indices would allow the construction of real
trade nows, as well as price comparisons of similar foreign and domestic service
industries. Te federal government would gain a true picture of the nations
competitiveness, in general and in specihc industries. IPP should begin by
restoring discontinued data series and adding the two major traded sectors of
healthcare and business services.
|cdcra| stat|st|ca| agcnc|cs s|ou|d co||a|orat|rc|y cxp|orc ays oj |u||d|ng a tcc|no|ogy
|a|ancc oj paymcnts mcasurc jor t|c U.S.
Te Organization for Economic Cooperation and Development, or OECD, has
estimated the so-called TBP, or technology balance of payments, for each of its
member nations, including the United States. TBP is dehned as money paid or
received for the acquisition or use of patents, licenses, trademarks, designs, inven-
tions, know-how and closely related technical services and is a useful indicator of
national competitiveness.
20

Te OECD TBP indicator for the United States shows a dramatic increase in
technology imports and exports between 1995 and 2009 (from $6.9 billion to
$55.8 billion and $30.3 billion to $89.1 billion, respectively). Te TBP indicator is
developed by an external organization from U.S. data sources created for dinerent
purposes. Te U.S. TBP indicator could be signihcantly improved for policy use
if the federal government devoted a few million dollars to improving measures of
trade in technology, an important component of trade in services.
23 Center for American Progress | Economic Intelligence
c Lcpartmcnt oj La|or s|ou|d rcqucst. and Congrcss s|ou|d pror|dc. t|c sma||
amount oj jund|ng t|at ou|d a||o 8LS to crcatc a jorc|gn currcncy pr|cc |ndcx.
Te United States today cant identify price trends in U.S. exports and imports
from the perspective of foreign buyers and sellers. Correcting this problem would
allow policymakers to identify shins in U.S. competitiveness in response to nuc-
tuations in the value of the dollar.
U.S. price indices by place
Congrcss s|ou|d scc t|at 8LA |as jund|ng to producc pr|cc |nd|ccs t|at a||o
compar|son oj t|c costs oj do|ng |us|ncss across U.S. rcg|ons.
Te federal government does not produce data that allow cost-of-doing-business
comparisons, a key aspect of competitiveness. BLS consumer price indices look
at changes over time, not dinerences over space. Te Council for Community and
Economic Research does publish the ACCR Cost of Living Index, or COLI.
21

However, COLI is limited in the number of items and regions covered, and
narrowly focuses on
expenditure pauerns
for midmanagement
households.
For several years, BEA
has been readying the
publication of Regional
Price Parities (RPPs)
to hll this data gap.
22

RPPs will oner inter-area
comparisons of the price
of various goods and
services, such as hous-
ing, education, medical,
and food. If fully imple-
mented, RPPs will allow
greater understanding
of the competitiveness
of individual U.S. states, metro areas, and counties. Further, they will enable real
(that is, price-adjusted) estimates of state, metro, and county economic perfor-
mance, such as per capita income. (see chart)
Getting price parities right
Estimated regional price parities for states and Washington, D.C., 2005-2009

120
115
110
105
100
95
90
85
80
Hawaii (119)
Arizona, Florida, Rhode Island
All U.S. = 100
South Dakota (84)
S
D
W
V
N
D
A
R
I
A
K
S
K
Y
M
O
M
S
N
E
A
L
O
K
L
A
I
N
N
C
T
N
O
H
S
C
W
I
M
T
I
D
M
I
M
N
U
T
N
M
G
A
W
Y
M
E
T
X
P
A
F
L
V
T
I
L
O
R
R
I
A
Z
C
O
V
A
N
V
A
K
M
A
M
D
W
A
D
E
N
H
D
C
C
T
C
A
N
J
N
Y
H
I
Source: Aten, Figueroa, and Martin, 2011.
24 Center for American Progress | Economic Intelligence
Intermediate outcomes that influence competitiveness
Problem
Federal statistical agencies do not provide adequate measures of key intermediate
outcomes that determine competitiveness-particularly innovation, entrepre-
neurship, and productive relationships between organizations.

Solutions
Innovation
8LA and t|c Nat|ona| Sc|cncc |oundat|on's Nat|ona| Ccntcr jor Sc|cncc and
Lng|nccr|ng Stat|st|cs s|ou|d co-|cad an |ntcragcncy or||ng group to coord|natc
d|sparatc corts to dcrc|op and |mp|cmcnt mcasurcs oj |nnorat|on act|r|ty.
Te federal government today lacks adequate measures of innovation, particu-
lar the extent, rates, and economic impacts of product and process innovations.
Historically, the default measure has been patents, but thats just one-and some-
times a misleading-manifestation of innovation.
Happily, a foundation for consensus around new innovation measures is being
developed. In 2008, the Commerce Department released a report recommend-
ing new metrics of innovation, including BEA analysis of the contribution of
innovation to economic growth and productivity.
23
BEA is in the midst of imple-
menting key recommendations.
24
In 2009, the National Center for Science and
Engineering Statistics and the Census Bureau helded a new annual Business R&D
and Innovation Survey that asks questions about intellectual property, R&D
agreements, and new product lines.
25

As previously noted, the Census Bureau is augmenting its Longitudinal Business
Database with patent data. And the USDA Economic Research Service is
planning a new Rural Establishment Innovation Survey to understand estab-
lishment-level innovation processes, including pauerns of knowledge transfer.
26

Regional researchers are looking at private databases such as TomasNet.com
to identify new product introductions, which would allow ongoing replication
of a landmark Small Business Administration-funded analysis of innovations
introduced to market in 1982.
27

25 Center for American Progress | Economic Intelligence
However, emerging federal enorts to measure innovation are not well coordinated
and have yet to meet policymakers needs. Consequently, BEA, by virtue of its cen-
tral role in the 2008 Commerce report recommendations, and NCSES, by virtue of
its congressional mandate to serve as the clearinghouse for science, engineering, and
technology data, should co-lead an interagency enort to coordinate innovation data
collection and measurement and the dehnition of innovation indicators.
28
Federal
units that need innovation data for policy purposes, such as the White House Omce
of Science and Technology Policy and the Commerce Departments Omce of
Innovation and Entrepreneurship, should be represented in this enort.
Entrepreneurship
c Ccnsus 8urcau and 8LS s|ou|d ta|c t|c stcps ncccssary to ma|c t|c|r |ong|tud|na|
|us|ncss data|ascs morc uscju| to rcscarc|crs and po||cyma|crs |n |dcnt|jy|ng t|c ro|c oj
cntrcprcncurs||p |n nat|ona| and rcg|ona| compct|t|rcncss.
An article of faith for decades has been that small businesses create the bulk of
Americas jobs. Researchers ability to fully test this belief was constrained by the
lack of easily-used federal longitudinal
hrm databases. In recent years, this con-
straint has been addressed by the devel-
opment of the Census Bureaus Business
Dynamics Statistics program (an onshoot
of the Longitudinal Business Database)
and BLS Business Employment
Dynamics program.
29
Recent Census
Bureau BDS research, supported in part
by the Kaunman Foundation, indicates
that reality is a variant on the long-held
belief: New businesses, most of which are
indeed small, are the primary job gen-
erators.
30
Using BDS and BED, a recent
Kaunman Foundation study found a
disconcerting decline in the number of
jobs created by business startups over the
last several decades.
31
Additional research is being undertaken to understand why
this is so. (see chart)
Tese works have researchers recognizing that BDS and BED provide valuable
platforms to beuer understand the role and dynamics of entrepreneurship as it
Innovation job creation
Trends in gross flows and net job creation among startups, 1980 to 2009
Source: Business Dynamics Statistics Brieng:
Historically Large Decline in Job Creation from
Startup and Existing Firms in the 2008-2009
Recession, Kauman Foundation, March 2011, http://
www.ces.census.gov/docs/bds/plugin-BDS%20
March%202011%20single_0322_FINAL.pdf>.
18.2
Gross job
creation
Job creation
from startups
Gross job
destruction
Net job
growth
16.7
15.8
16.2
Average 1980-1989
As percentage of total U.S. jobs
Average 1990-1999
Average 2000-2009
14.8 14.9
3.5
3.0
2.6
2.0 1.9
0.9
26 Center for American Progress | Economic Intelligence
relates to competitiveness. Moreover, national and regional economic and busi-
ness development organizations are beginning to appreciate that BDS and BED
data can help shape more enective policies and programs.
To realize these platforms potential, the following steps should be taken:
r
Te Kaunman Foundation found that Census Bureau and BLS databases gener-
ated quite dinerent new business job creation numbers (though they trended in
the same direction). Consequently, the Census Bureau and BLS should collabo-
rate with each other and with academic researchers to determine the reasons
that their new business job creation numbers signihcantly diner. Passage of
data synchronization legislation, discussed earlier, would facilitate this process.
Absent such legislation, the inability of the Census Bureau to share its IRS-
derived data with BLS complicates researchers ability to determine the nature
of entrepreneurships role in competitiveness.
r
Te BDS and BED programs should provide data by metro areas and counties.
Neither the BDS nor the BED today provides data tables below the state level.
r
Te Census Bureau should continue its enorts to improve the ability of research-
ers to access to microdata through its Research Data Center program. At pres-
ent, RDC program procedures for allowing researchers to gain access to LBD/
BDS microdata can be burdensome.
r
To improve measurement of new business outcomes, the Census Bureau should
implement its plans to integrate external datasets (such as innovation and
exports) into the LBD and, by extension, the BDS.
r
Te BDS and BED programs should create hrm-based datasets as robust as their
establishment-based ones. (One hrm can have multiple establishments.) At
present, analysis by hrm is more dimcult than analysis by establishment, mud-
dying understanding of entrepreneurial dynamics. Much of the new data being
added to the LBD will be at the hrm level. Several years ago, in a preliminary
proposal for an Enterprise Statistics Program, the Census Bureau contemplated
providing a more robust set of hrm-level data through the LBD; the proposal
was a good one and should be reconsidered.
Te sum cost of these various steps is relatively small.
27 Center for American Progress | Economic Intelligence
Intracluster relationships
c Lconom|c Lcrc|opmcnt Adm|n|strat|on s|ou|d ta|c t|c |cad |n scc|ng t|at t|c
jcdcra| cconom|c stat|st|ca| systcm a||os rcg|ona| cconom|c dcrc|opmcnt organ|zat|ons
to |dcnt|jy and ana|yzc |ntra-c|ustcr rc|at|ons||ps and dctcrm|nc t|c |mp||cat|ons oj
t|csc jor rcg|ona| compct|t|rcncss.
Federal, state, and regional economic policymakers today lack sumcient infor-
mation on the nature and role of interorganizational relationships in driving the
competitiveness of regional clusters. Regional clusters are geographic concentra-
tions of interconnected hrms and supporting organizations. If national economic
competitiveness is largely a function of regional economic competitiveness,
regional competitiveness in turn depends largely on the competitiveness of
individual clusters. Tick interorganizational relationships-transactional (e.g.,
buyer-supplier) and interpersonal (sharing of ideas)-are key to cluster competi-
tiveness.
32
However, the federal statistical system at present is not organized to
supply cluster-specihc data.
Specihcally, EDA should:
r
Engage BEA to analyze Economic Census data to identify generic buyer-
supplier templates for major cluster types (e.g., biotechnology) and apply the
results to its Regional Input-Output Modeling System, or RIMS II, allowing the
assessment of the role and impacts of individual clusters33
r
Provide technical assistance so that regional development organizations can
utilize private input-output models such as Regional Economic Models, Inc.s
REMI model and IMPLAN for cluster analysis
34
r
Ask NCSES to publish spatial information on university-industry partnerships
r
Actively explore the innovative use of commercial datasets to identify regional
relationships, such as using Capital IQ database to see connections between
hnancial backers and startup enterprises
35
Congrcss s|ou|d pror|dc t|c Ccnsus 8urcau |t| junds suc|cnt to conduct t|c 2012
Lconom|c Ccnsus.
Te Census Bureaus Economic Census, carried out for years ending in the numbers
2 and 7, is essential to most dimensions of economic policy, including competitive-
Congress should
provide the Census
Bureau with
funds sucient to
conduct the 2012
Economic Census.
28 Center for American Progress | Economic Intelligence
ness.
36
For example, the Economic Census is relied on by BEA to measure GDP, by
BLS to measure productivity, by economists to forecast national and state eco-
nomic growth, by industry associations to assess sector competitiveness, by hrms to
compare their metrics to their industry as a whole, and by economic development
agencies to estimate the impacts of proposed projects.
37
As suggested above, the
Economic Census would be instrumental in identifying regional intra-cluster rela-
tionships. Further, the Economic Census Survey of Business Owners is the single
most important federal source of entrepreneurship data.
However, FY2012 appropriations approved by Congress signihcantly cut the
Census Bureaus periodic censuses budget request. As a consequence, the Census
Bureau is scaling back this years spending on the 2012 Economic Census by 10
percent ($12 million). Te Census Bureau says it will do the best it can to produce
savings through greater emciencies and maintain data reliability.
To ensure the enectiveness of competitiveness and macroeconomic policies that
will rely on the 2012 Economic Census, it is highly important that Congress
fully fund President Obamas forthcoming FY2013 budget request for that data
collection enort.
38
Factor analysis

Problem
Te federal statistical system does not provide sumcient data regarding the factors
that lead to competitiveness, including R&D expenditures, workforce, education
and training, business hnance, and energy.

Solutions
R&D expenditures
c Nat|ona| Ccntcr jor Sc|cncc and Lng|nccr|ng Stat|st|cs s|ou|d pror|dc a currcnt.
comp|ctc. dcta||cd p|cturc oj koL cxpcnd|turcs jor t|c nat|on. statcs. and rcg|ons.
|n part|cu|ar. NCSLS s|ou|d.
r
Publish business R&D data in a timely manner. Te latest detailed data are
from 2007.
29 Center for American Progress | Economic Intelligence
r
Provide data tables of business and academic R&D for metropolitan areas, data
valuable for understanding regional competitiveness. At present, R&D data are
presented only at the state level.
r
Institute an annual survey of R&D carried out by nonprohts other than universi-
ties (which are primarily hospitals), last conducted for 1997. Doing so also would
allow NCSES to hll in R&D data gaps at the state and metro level. Tis is particu-
larly important in Boston, with its concentration of hospital R&D activity.
r
Improve its web tools for data access to allow users to build customized tables.
39

Te cost of carrying out these recommendations is relatively small.
Workforce and education
Global economic competitiveness depends on business access to a skilled,
creative workforce. Labor market actors-businesses, educators, workers, and
students-make choices about jobs, careers, and education in response to
market signals and information.
Workforce development organizations need good information to make informed
investment decisions. Unfortunately, federal workforce and education data are
insumcient to meet decision-maker needs. Te statistical system is pursuing a
number of IT-driven enorts that, if fully implemented, will dramatically expand
the ability to understand the working of labor markets.
c Lcpartmcnt oj La|or s|ou|d rcqucst. and Congrcss s|ou|d approrc. jund|ng t|at
ou|d a||o 8LS to.
r
Retain the International Labor Comparisons program, slated for closure. Tis
$2 million program allows cross-national comparisons for labor force, employ-
ment, unemployment, hourly compensation costs, productivity and unit labor
costs, GDP per capita and per hour, and consumer prices.
40
r
Double support for state labor market information agencies, to $170 million.
BLS funding to state labor market information agencies to provide jobs data is
insumcient-it has been nat at $85 million for a full decade. Te increase would
pay for itself many times over in terms of improved labor market function-
ing and resulting drops in federal expenditures for income security programs,
including unemployment insurance.
30 Center for American Progress | Economic Intelligence
r
Expand the Occupational Employment Statistics program sample (at an addi-
tional cost of $5 million) so that it can produce annual, rather than three-year
average, estimates of employment by occupation for the nation, states, and
metropolitan areas.
41
r
Expand the sample of the Job Openings and Labor Turnover Survey, known
as JOLTS, so that data can be published by state. Te preferred approach is a
relatively small congressional appropriation; alternatively, BLS could oner each
state the option of paying BLS to increase the states JOLTS sample size so that
state-specihc data could be published.
42
r
Work with the state labor market information agencies to evaluate and reorganize
the 62-year-old federal-state cooperative statistics system in light of advances in IT
and increased demand for competitiveness-related labor force data.
43

c Lcpartmcnt oj La|or s|ou|d rcqucst. and Congrcss s|ou|d approrc. jund|ng t|at
ou|d a||o t|c dcpartmcnt's Lmp|oymcnt and 1ra|n|ng Adm|n|strat|on to.
r
Improve the relevance and detail of the O*NET occupational classihcation
database. ETA today lacks the funding necessary to maintain an up-to-date
O*NET and related decision tools.
44
Tese are needed to guide postsecondary
institutions decisions about program onerings and workers decisions about
careers and training, particularly for emerging knowledge-based occupations.
Additional annual costs would be a few million dollars.
r
Triple support for the Workforce Information Grant Program for state LMI
agencies to $100 million.
45
Tis increase would pay for itself many times over in
improved labor market functioning and resulting drops in federal expenditures
for income security programs, including unemployment insurance. As with
BLS, ETAs funding to states has been nat over the past decade, stuck at about
$35 million annually.
r
Encourage state labor market information agencies to produce data on
regional occupational and skills intensity, based on Occupation Employment
Statistics and O*NET.
46
r
Continue to support the development of skills-based projections by states,
based on O*NET.
47
Reliable projections of skill needs would allow education
and training programs to adjust their onerings accordingly.
31 Center for American Progress | Economic Intelligence
r
Continue to support advances in the use of transactional or real-time labor
market information by states to identify changes in occupational demand. Real-
time labor market information involves the collection and analysis of text from
electronic job boards.
48
r
Continue to support future iterations of the Workforce Data Quality Initiative
that provides grants to state labor market information agencies to link workforce
data to state education agencies Statewide Longitudinal Data Systems. Tis
linkage will allow the identihcation of the employment and earnings outcomes
of various educational paths and programs, enabling educators to adjust educa-
tion onerings to beuer meet market demand.
49
r
See that state workforce training grantees are required to use ETA-funded work-
force data in making grant investment decisions, which is not the case now.
c Nat|ona| Ccntcr jor Lducat|on Stat|st|cs s|ou|d.
r
Seek, and Congress should approve, continued funding of the Statewide
Longitudinal Data Systems (SLDS) grant program.
50
When fully imple-
mented, SLDS will allow policymakers, educators, and researchers to under-
stand the workforce outcomes, like employment and wages, of various types
of education programs. As a result, educational onerings can be beuer shaped
to meet employer demands.
r
Expand the Integrated Postsecondary Education Data System to include nontradi-
tional students.
51
Graduation rates now only cover hrst-time, full-time students.
52

r
Continue to pursue options for adding questions to NCES and Census Bureau
surveys on the auainment of postsecondary non-degree credentials, specihcally
community college certihcates and industry certihcations. Such credentials can
enhance worker employability and wages.
53
c Nat|ona| Ccntcr jor Sc|cncc and Lng|nccr|ng Stat|st|cs s|ou|d cxpand |ts ana|ys|s
oj sc|cncc and cng|nccr|ng or|jorcc and S1LM cducat|on to |nc|udc or|crs |t| |css
t|an a |acca|aurcatc dcgrcc.
Historically, NCSES has focused on the publication of workforce and education
data only at the baccalaureate level and above. As a result, analysts do not have a
The National
Center for Science
and Engineering
Statistics should
expand its analysis
of science and
engineering
workforce and
STEM education
to include workers
with less than a
baccalaureate
degree.
32 Center for American Progress | Economic Intelligence
full understanding of the science and engineering labor market. Te new NCSES
congressional mandate requires the agency to collect, acquire, analyze, report,
and disseminate . . . statistical data on . . . the science and engineering workforce . . .
(and) the condition and progress of United States STEM education.
54

c Ccnsus 8urcau s|ou|d |mp|cmcnt |ts p|anncd Loca| Lmp|oymcnt Lynam|cs pro-
gram o|-to-o| os too|.
Tis tool would allow researchers to track job paths of various groups of workers
(such as laid-on manufacturing workers) at geographic levels as small as counties
while fully protecting conhdentiality.
55
Te tool will be a large boost to regional
labor market functioning in its own right; it has the potential to be used in SLDS
to track workforce outcomes across state lines.
c Sccrctary oj La|or s|ou|d cxpand Wor|jorcc |njormat|on Counc|| mcm|crs||p
to |nc|udc a|| jcdcra| stat|st|ca| agcnc|cs pror|d|ng or|jorcc and cducat|on data. and
rcprcscntat|rcs oj t|c|r statc countcrparts. Mcm|crs oj t|c nc W|C s|ou|d co||a|oratc
to |dcnt|jy and addrcss |a|or mar|ct |njormat|on ja||urcs.
Te current membership of the Workforce Information Council, created by the
Secretary of Labor to identify and respond to workforce data needs as mandated
by the Workforce Investment Act of 1998, is far too narrow to fulhll its mission. At
present, membership includes only BLS and representatives from state labor market
information agencies. Essentially, the WIC is focused on the BLS-state cooperative
statistics program to the exclusion of other workforce data enorts, such as those con-
ducted by the Census Bureau, NCES, ETA, NCSES, and state education agencies.
To facilitate coordination among federal agencies involved in labor market
statistics, the Secretary of Labor should expand membership in the Workforce
Information Council to include BLS, ETA, NCES, Census, NCSES, state labor
market information agencies, and state education agencies.
56

Financial capital
c Sma|| 8us|ncss Adm|n|strat|on s|ou|d |cad an |ntcragcncy or||ng group to |dcn-
t|jy and addrcss t|c nccds jor sma|| |us|ncss nancc data.
Such data are needed to identify and provide policy responses to unmet hnanc-
ing needs. At present, there is a signihcant gap in such data, particularly since the
demise of the Federal Reserves Survey of Small Business Finance.
57
Tere also is
33 Center for American Progress | Economic Intelligence
an absence of coordination among federal agencies with a role in collecting small
business hnancing data, including the Small Business Administration, the Census
Bureau, the Consumer Finance Protection Bureau, the Small Business Lending
Fund in the Treasury Department, and the various federal hnancial institution
regulatory agencies such as the Federal Reserve.
Energy
Congrcss s|ou|d jund 8LA to crcatc an cncrgy satc|||tc account.
Energy supply and costs are an important determinant of competitiveness. In its
FY2012 budget request, BEA proposed a $1.2 million initiative to provide infor-
mation on energy supply and consumption dynamics, energy prices, and energy
product impacts on GDP, consumer spending, and industry performance. Te
initiative was not funded and deserves congressional consideration in FY2013.
58

Competitiveness program evaluation

Problem
Federal, state, and regional competitiveness-related program agencies lack data on
the impacts of their programs.
OMB Director Jacob Lew recently advised agencies that to drive long-term
productivity increases, your 2013 budget and management plans should explain
how your agency will acquire, analyze, evaluate, and use data to improve policy and
operational decisions, and how you will reallocate and strengthen your analytic and
evaluation capacity to set outcome-focused priorities, identify the most enective and
cost-enective practices and programs, and speed their adoption.
59
For many federal
programs that support competitiveness, however, such evaluative data are dimcult
and expensive to come by. Access to such data tends to be even more dimcult for
competitiveness programs run by state and regional organizations.

Solution
Te Census Bureau should create a program to use the Longitudinal Business
Database to assess the impacts of federal, state, and regional agency support to
individual hrms on hrm survival, revenues, jobs, wages, exports, innovation, and
other competitiveness-related outcomes. Te Census Bureau would use the LBD
34 Center for American Progress | Economic Intelligence
to track these outcomes among participants in economic and business devel-
opment programs and compare them to those for control groups of establish-
ments. Tis recommendation, based on a proposal by E.J. Reedy of the Kaunman
Foundation, would be funded by user fees.
60
35 Center for American Progress | Economic Intelligence
Conclusion


An enective federal competitive policy requires statistical agencies to produce the
current, reliable, detailed data needed by federal, state, and local policy and program
agencies and market actors to make intelligent decisions regarding the strategic
investment of scarce resources. Tis in turn will require federal statistical enorts to
be demand-driven, innovative, collaborative, accessible, and sumciently funded. At a
time of economic and hscal constraints, relatively small new investments in competi-
tiveness-relevant data can generate positive impacts on jobs, wages, and government
revenues that are many orders of magnitude greater than the costs.
36 Center for American Progress | Economic Intelligence
About the author

Andrew D. Reamer is Research Professor at the George Washington
University Institute of Public Policy. He focuses on policies that promote U.S.
competitiveness. Areas of interest include innovation, regional economic and
workforce development, and economic statistics.
Dr. Reamer is a member and former chair of the Bureau of Labor Statistics
Data User Advisory Commiuee; a member of the Bureau of Economic Analysis
Advisory Commiuee; past president of the Association of Public Data Users; and
a board member of the Council for Community and Economic Research. He also
is a Nonresident Senior Fellow at the Brookings Institution.
Before joining GWIPP, Dr. Reamer was a Fellow at the Brookings Institutions
Metropolitan Policy Program and Deputy Director of its Urban Markets Initiative.
He founded the Federal Data Project, which sought to improve the availability
and accessibility of federal socioeconomic data for states, metropolitan areas,
and cities. He also co-authored the policy brief that served as the basis for the
Regional Innovation Program authorized by Congress in 2010.
Dr. Reamer co-founded Mt. Auburn Associates in 1984 and founded Andrew
Reamer & Associates in 1995, both regional economic development and public
policy consulting hrms. He received a Ph.D. in Economic Development and Public
Policy and a Master of City Planning from the Massachuseus Institute of Technology.
Acknowledgements
Te author thanks the Center for American Progress for the opportunity to write
this paper. CAP stan Ed Paisley, Reece Rushing, and Sean Pool were most sup-
portive and accommodating throughout this process. Gadi Dechter provided
helpful suggestions about organization and now. Te author is solely responsible
for the accuracy of the content.
37 Center for American Progress | Economic Intelligence
1 U.S. traded industries comprise U.S.-based establishments that
compete with establishments located outside the United States. The
competition may be in U.S. markets or overseas. Location, not own-
ership, is the dening factor. A foreign-owned establishment based
in the United States is considered part of the U.S. traded sector.
2 This estimate is based on the current annual budgets for the Bureau
of Labor Statistics (approximately $610 million), Census Bureau
economic statistics (approximately $550 million, including the
American Community Survey), the National Agricultural Statistics
Service (approximately $120 million), the National Center for
Education Statistics ($110 million), the Bureau of Economic Analysis
(approximately $90 million), USDA Economic Research Service (ap-
proximately $80 million), Employment and Training Administration
workforce information (approximately $50 million), the IRS Statistics
of Income Division (approximately $40 million), and the National
Center for Science and Engineering Statistics (approximately $35
million), for a total of approximately $1.7 billion.
3 For a list of indicators, see: Schedule of Release Dates for Principal
Federal Economic Indicators for 2012 available at http://www.white-
house.gov/sites/default/les/omb/inforeg/statpolicy/pfei-schedule-
of-release-dates-2012.pdf.
4 Andrew Reamer, The Federal Role in Encouraging Innovation: The
Is Have It, Innovation Policy blog, December 17, 2010, available at
http://www.innovationpolicy.org/the-federal-role-in-encouraging-
innovation-th. See also Karen Mills, Elisabeth Reynolds, and Andrew
Reamer, Clusters and Competitiveness: A New Federal Role for
Stimulating Regional Economies (Washington: The Brookings
Institution, 2008), available at http://www.brookings.edu/re-
ports/2008/04_competitiveness_mills.aspx.
5 Jeremy Rudd, Remarks to the 110th Meeting of the Committee on
National Statistics, October 30, 2009, slide 11, available at http://
www7.nationalacademies.org/cnstat/Rudd%20Slides%20Oct%20
30%202009.pdf.
6 Public-use microdata remove information that could be used to
identify a business or person, such as name or address. An example
is the public-use microdata samples for the Census Bureaus
American Community Survey. For more information, see: Bureau of
the Census, American Community Survey 2000-2010, (Department
of Commerce, 2011), available at http://www.census.gov/acs/www/
data_documentation/pums_data/. Noise infusion slightly changes
data for each individual record, which allows more table data to be
published without violating condentialityfor example, the Cen-
sus Bureaus County Business Patterns uses noise infusion. For more
information, see: Bureau of the Census, How the Data are Collected,
(Department of Commerce, 2011), available at http://www.census.
gov/econ/cbp/methodology.htm. Synthetic microdata use statistical
models to create detailed simulated records (that is, do not describe
actual businesses) that mirror the aggregations and distributions
of the underlying real microdata. See: John M. Abowd and others,
Synthetic Longitudinal Business Database, (Washington: Center for
Economic Studies, 2011), available at http://www.census.gov/ces/
search.php?search_what=paps&detail_key=101943.
7 Manufacturing, for instance, is considered fully traded as markets
for manufactured products are open to worldwide competition.
Financial services and health services are examples of partially
traded industries because they include local services (such as banks
and internists) as well as ones that participate in worldwide markets
(such as international investment banking and state-of-the-art
cancer treatments).
8 For more background and information on NAICS, see: Bureau of the
Census, North American Industry Classication System (Department
of Commerce, 2011), available at http://www.census.gov/eos/www/
naics/.
9 Committee on National Statistics, Improving Business Statistics
Through Interagency Data Sharing: Summary of a Workshop (2006).
10 Michael Mandel and Susan Houseman, Not all productivity gains
are the same. Heres why,What Matters blog, June 1, 2011, available
at http://whatmatters.mckinseydigital.com/growth_and_produc-
tivity/not-all-productivity-gains-are-the-same-here-s-why?utm_
source=email2&utm_medium=marketing&utm_campaign=growth.
11 Stephen J. Ezell and Robert D. Atkinson, The Case for a National
Manufacturing Strategy (Washington: Information Technology
& Innovation Foundation, 2011), available at http://www.itif.org/
les/2011-national-manufacturing-strategy.pdf.
12 Mandel and Houseman, Not all productivity gains are the same.
Heres why.
13 Core processes include strategic management; procurement, logis-
tics, and distribution; operations; product development; marketing,
sales, and account management; and customer and after-sales
service. Support processes include general management and rm
infrastructure; human resource management; and technology and
process development. See: Bureau of Labor Statistics, Business Func-
tions and Processes in Extended Mass Layos in the First Quarter
2011 (Department of Labor, 2011), available at http://www.bls.gov/
mls/mlbfbptext_20111.htm.
14 For a discussion of this idea, see: Jonathan F. Karp, Can the US
Import Sunlight from New Zealand?: An Assessment of New
Zealands Model for Corporate Financial Disclosure, Fulbright Voices
blog, August 2011, available at http://www.fulbright.org.nz/voices/
axford/2011_karp.html.
15 For a discussion of this budget request, see: Economics and Statistics
Administration, Economic and Statistical Analysis Budget: Budget
Estimates, Fiscal Year 2012, (Department of Commerce, 2011), pp.
40-44, available at http://www.osec.doc.gov/bmi/budget/12CJ/
ESA_FY_2012_Congressional_Submission.pdf.
16 State International Development Organizations, States let down by
Congress decision not to fund state level data collection, Press
release, December 10, 2009, available at http://www.sidoamerica.
org/data/les/sido_press_release_bea_fdi data.docx.
17 Select USA home page, available at http://selectusa.commerce.
gov/ (last accessed December 2011).
18 In its scal year 2010 and 2011 budget requests, BEA laid out a
detailed proposal for enhancing foreign direct investment data
that was not funded. See Economics and Statistics Administration,
Economic and Statistical Analysis Budget,(pp. 53-54), available
at http://www.osec.doc.gov/bmi/budget/11CJ/2011%20ESA%20
CJ%20FINAL.pdf.
19 Secretary of Commerce, in Consultation with the Secretary of Labor,
Report to the Committee on Finance of the Senate and the Com-
mittee on Ways and Means of the House of Representatives on Trade
in Services Statistics (2010).
20 Organisation for Economic Co-operation and Development,
Main Science and Technology Indicators (MSTI): 2011/1 Edition,
(2011), available at http://www.oecd.org/document/26/0,3746,
en_2649_34451_1901082_1_1_1_1,00.html.
21 The ACCRA Cost of Living Index, available at http://www.coli.org/
(last accessed December 2011).
22 Bettina Aten, Eric Figueroa, and Troy Martin, Notes on Estimating
the Multi-Year Regional Price Parities by 16 Expenditure Categories:
2005-2009, (Washington: Bureau of Economic Analysis, 2011),
available at http://www.bea.gov/papers/pdf/notes_on_estimat-
ing_the_multi_year_rpps_and_appendix_tables.pdf.
23 Advisory Committee on Measuring Innovation in the 21st Century
Economy, Innovation Measurement, Tracking the State of Innova-
tion in the American Economy (2008).
Endnotes
38 Center for American Progress | Economic Intelligence
24 Innovation Account, available at http://www.bea.gov/national/ne-
winnovation.htm.
25 For information on the Business R&D and Innovation Survey, see:
National Science Foundation, Business R&D and Innovation Survey,
available at http://www.nsf.gov/statistics/srvyindustry/about/brdis/.
See also: Bureau of the Census, Business R&D and Innovation Sur-
vey, available at http://bhs.econ.census.gov/bhs/brdis/index.html.
26 For more information, see: Economic Research Service, Notice of
Intent to Request New Information Collection, (Department of Com-
merce), available at http://www.gpo.gov/fdsys/pkg/FR-2011-06-22/
html/2011-15474.htm.
27 Keith L. Edwards and Theodore Gordon, Characterization of In-
novations Introduced on the U.S. Market in 1982 (Glastonbury:
The Futures Group, 1984), available at http://archive.sba.gov/advo/
research/rs62tot.pdf.
28 America COMPETES Reauthorization Act of 2010, Section 505, says
that NCSES should serve as a central Federal clearinghouse for the
collection, interpretation, analysis, and dissemination of objective
data on science, engineering, technology, and research and devel-
opment.The proposed interagency eort would be informed in
part by the forthcoming ndings of a National Academies of Science
project, sponsored by NCSES, Developing Science, Technology,
and Innocation Indicators for the Future. Details available at http://
www8.nationalacademies.org/cp/projectview.aspx?key=49353.
29 Business Dynamic Statistics, available at http://www.ces.census.
gov/index.php/bds; Business Employment Dynamics, available at
http://www.bls.gov/bdm/.
30 Bureau of the Census, Business Dynamics Statistics Brieng: Jobs
Created from Business Startups in the United States, (Deartpment
of Commerce), available at http://www.ces.census.gov/docs/bds/
BDS_Jobs_Created_ces.pdf.
31 E.J. Reedy and Robert E. Litan, Starting Smaller; Staying Smaller:
Americas Slow Leak in Job Creation (Kansas City: E.W. Marion
Kauman Foundation, 2011), available at http://www.kauman.org/
uploadedFiles/job_leaks_starting_smaller_study.pdf.
32 Karen G. Mills, Elisabeth B. Reynolds, and Andrew Reamer, Clusters
and Competitiveness: A New Federal Role for Stimulating Regional
Economies (Washington: The Brookings Institution, 2008), available
at http://www.brookings.edu/reports/2008/04_competitiveness_
mills.aspx.
33 RIMS II provides six types of multipliers for regional industries: nal-
demand multipliers for output, earnings, employment, and value
added; and direct-eect multipliers for earnings and employment.
For more information on RIM II, see: Bureau of Economic Analysis,
Regional Input-Output Modeling System (RIMS II), (U.S. Department
of Commerce, 2010), available at https://www.bea.gov/regional/
rims/index.cfm.
34 Regional Economic Models, Inc., available at http://www.remi.
com/; and IMPLAN Economic Modeling, at http://implan.com/V4/
Index.php.
35 Capital IQ, available at https://www.capitaliq.com/home.aspx (last
accessed December 2011).
36 Bureau of the Census, Economic Census, (Department of Commerce,
2011), available at http://www.census.gov/econ/census12/.
37 See materials on the uses of the Economic Census provided by the
American Economic Association at http://www.aeaweb.org/com-
mittees/Govt_Relations/briengs_presentations.php.
38 Economic Census data collection takes place in FY2013.
39 National Research Council, Communicating Science and Engineer-
ing Data in the Information Age, Panel on Communicating National
Science Foundation Science and Engineering Information to Data
Users, Committee on National Statistics and Computer Science and
Telecommunications Board, Division of Behavioral and Social Sci-
ences and Education (Washington: The National Academies Press,
2011).
40 For information on the International Labor Comparisons program,
see: The Bureau of Labor Statistics, International Labor Comparisons,
(U.S. Department of Labor), available at http://www.bls.gov/s/.
41 For information on the Occupational Employment Statistics pro-
gram, see: The Bureau of Labor Statistics, Occupational Employment
Statistics, (U.S. Department of Labor), available at http://www.bls.
gov/oes/.
42 For information on the JOLTS program, see: The Bureau of Labor Sta-
tistics, Job Openings and Labor Turnover Survey, (U.S. Department
of Labor), available at http://www.bls.gov/jlt/.
43 In Senate Report 112-084, Departments of Labor, Health and Hu-
man Services, and Education, and Related Agencies Appropriation
Bill, 2012,attached to the recently passed Consolidated Appropria-
tions Act, 2012, the Senate Appropriations Committee directs the
Secretary of Labor to commission a study of and report on a com-
prehensive assessment of the proper purpose, structure, methods,
and operations of the Federal-State cooperative statistics system
(including the CES, QCEW, LAUS, OES, and MLS programs), particularly
regarding the appropriate roles and responsibilities of BLS, ETA, the
State labor market information agencies, and the systems relation-
ship with the Census Bureau, the National Center for Education
Statistics, State workforce agencies, State education agencies, and
private vendors. The Committee believes the National Academies of
Science (Committee on National Statistics) and the National Academy
of Public Administration are very well qualied to produce such a
report,p. 31.
44 The O*NET database contains information on hundreds of standard-
ized and occupation-specic descriptors. The database is updated
by surveying a broad range of workers from each occupation. Every
occupation has a unique mix of knowledge, skills, and abilities, and
is performed through a variety of activities and tasks. These distin-
guishing occupational characteristics are described by the O*NET
Content Model, which denes the key features of an occupation as
a standardized, measurable set of variables. This model starts with
six domains describing the day-to-day aspects of the job and the
qualications and interests of the typical worker. For more informa-
tion on O*NET, see: O*NET, available at http://www.onetonline.org/
(last accessed December 2011).
45 For information on the Workforce Information Grants to States
program, see: U.S. Department of Labor, Training and Employment
Guidance Letter No. 04-11(2011), available at http://wdr.doleta.gov/
directives/corr_doc.cfm?DOCN=3065. See also: U.S. Department of
Labor, Workforce Investment Act/Wagner-Peyser Act/Access to State
Portal/Plans/Reports(2011), available at http://www.doleta.gov/
Performance/results/AnnualReports/annual-report-10.cfm.
46 For an example of a tool that describes occupation-specic clusters
by geography, see the Innovation Data Browser on the Innovation
in American Regions website maintained by the Indiana Business
Research Center and funded by the U.S. Economic Development
Administration: Innovation Data Browser, available at http://www.
statsamerica.org/innovation/anydata/index.asp?T1.
47 For an overview of the skills-based projection program, see:
Employment and Training Administration, Skills-Based Employ-
ment Projections System (2010), available at http://www.brookings.
edu/~/media/Files/rc/speeches/2010/0927_labor_statistics_ream-
er/0927_labor_statistics_projection.pdf. For the technical home
of the eort, see: Projections Consortium, available at http://dev.
projectionscentral.com/sbproj/sbprojections.asp.
48 For examples of real-time labor market information, see The Confer-
ence Board Help Wanted OnLine (http://conferenceboard.org/data/
helpwantedonline.cfm) and Monster Government Solutions (http://
www.c2er.org/download/2011-11/11-01-11_Presentation.pdf ).
49 U.S. Department of Labor, Workforce Data Quality Initiative (2011),
available at http://www.doleta.gov/Performance/workforcedata-
grant09.cfm.
50 Institute of Education Sciences, Statewide Longitudinal Data
Systems (SLDS) Grant Program, available at http://nces.ed.gov/
programs/slds/.
39 Center for American Progress | Economic Intelligence
51 The Integrated Post-Secondary Education Data System, available at
http://nces.ed.gov/ipeds/ (last accessed December 2011).
52 U.S. Government Accountability Oce, Higher Education: Institutions
Reported Data Collection Burden is Higher Than Estimated but Can
Be Reduced through Increased Coordination (2010). See also: Com-
plete College America, Uniformly Measure Progress and Success.
53 Bill and Melinda Gates Foundation, Postsecondary Success: Focusing
on Completion(2009), available at http://www.gatesfoundation.
org/learning/Documents/postsecondary-education-success-plan-
executive-summary.pdf.
54 America COMPETES Reauthorization Act of 2010 (P.L. 111-358), sec-
tion 505.
55 For a job-to-job ow analysis of construction workers during the
recession, see the presentation by Henry Hyatt and Erika McEntarfer,
Job-to-Job Flows in the Great Recession,American Economic Asso-
ciation Annual Metting, January 7, 2012, at http://prezi.com/5qmtw-
i5fmrm/2012-aea-job-to-job-great-recession/.
56 For more detailed discussion about the desirability of expanding
WIC membership, see: Andrew Reamer, Putting America to Work:
The Essential Role of Federal Labor Market Statistics (Washington:
The Brookings Institution, 2010), available at http://www.brookings.
edu/papers/2010/1029_labor_reamer.aspx. For description of
Senate-mandated study relevant to this topic. see foonote 43.
57 E.J. Reedy, Small Business Finance Data, Data Maven blog, June
29, 2010, available at http://www.kauman.org/Blogs/DataMaven/
June-2010/Small-Business-Finance-Data-aspx.
58 For a discussion of BEAs proposed initiative, see: Economics and
Statistics Administration, Economic and Statistical Analysis Budget:
Budget Estimates, Fiscal Year 2012, (U.S. Department of Com-
merce, 2011), pp. 62-65, available at http://www.osec.doc.gov/bmi/
budget/12CJ/ESA_FY_2012_Congressional_Submission.pdf.
59 Executive Oce of the President, Oce of Management and
Budget, Fiscal Year 2013 Budget Guidance, Memorandum for heads
of departments and agencies, August 17, 2011, available at http://
www.whitehouse.gov/sites/default/les/omb/memoranda/2011/
m11-30.pdf.
60 From private communication.
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About the Center for American Progress
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to promoting a strong, just and free America that ensures opportunity for all. We believe that
Americans are bound together by a common commitment to these values and we aspire to ensure
that our national policies reect these values. We work to nd progressive and pragmatic solutions
to signicant domestic and international problems and develop policy proposals that foster a
government that is of the people, by the people, and for the people.
About Doing What Works
CAPs Doing What Works project promotes government
reform to eciently allocate scarce resources and achieve
greater results for the American people. This project
specically has three key objectives:
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Immigration for Innovation
How to Attract the Worlds Best Talent While Ensuring America
Remains the Land of Opportunity for All
Marshall Fitz January 2012
WWW. AMERI CANPROGRESS. ORG
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The fifth report in a series on U.S. science and economic competitiveness from the
Doing What Works and Science Progress projects at the Center for American Progress
About this series on U.S. science
and economic competitiveness
Te U.S. Congress in late 2010 asked the Department of Commerce to complete two studies as part
of the reauthorization of the America COMPETES Act. Te hrst, which was released on January 6th,
2012, at the Center for American Progress, focuses on U.S. competitiveness and innovation. Te sec-
ond, due to Congress in early 2013, oners specihc recommendations for developing a 10-year national
innovation and competitiveness strategy.
We applaud the commissioning of these reports but believe we cannot anord to wait that long to take
action. Tats why we convened in the spring of 2011 the group of experts listed on the following page.
We spent two days in wide-ranging discussion about the competitive strengths and weaknesses of our
nations scientihc endeavors and our economy, before seuling upon the topics that constitute the series
of reports we publish here. Each paper in the series looks at a dinerent pillar supporting U.S. science
and economic competitiveness in a globally competitive economy:
r
Rewiring the Federal Government for
Competitiveness
r
Economic Intelligence
r
Universities in Innovation Networks
r
Manufacturers in Innovation Networks
r
Building a Technically Skilled Workforce
r
Immigration for Innovation
Te end result, we believe, is a set of recommendations that the Obama administration and Congress
can adopt to help the United States retain its economic and innovation leadership and ensure that all
Americans have the opportunity to prosper and nourish now and well into the 21st century.
Many of our recommendations are sure to spark deep resistance in Washington, not least our proposal
to reform a number of federal agencies so that our government works more enectively and emciently in
the service of greater U.S. economic competiveness and innovation. Tis and other proposals are sure
to meet resistance on Capitol Hill, where dinerent congressional commiuees hold sway over diner-
ent federal agencies and their policy mandates. Tats why we open each of our reports with this one
overarching recommendation: Congress and President Obama should appoint a special commission to
recommend reforms that are packaged together for a single up-or-down vote in Congress. In this way,
thorough-going reform is assured.
Tis new commission may not adopt some of the proposals put forth in this series on science and
economic competitiveness. But we look forward to sharing our vision with policymakers as well as the
American people. President Obama gets it right when he says, To win the future, we will have to out-
innovate, out-educate, and out-build our competitor nations. We need to start now.
Coordinating editors for the series on U.S. science and economic competitiveness
Ed Paisley, Vice President, Editorial, American Progress
Gadi Dechter, Associate Director, Government Reform, Doing What Works
Sean Pool, Assistant Editor, Science Progress
American Progress taskforce on U.S. science and economic competitiveness
John Alic, science, technology, and economic policy
consultant and former stan member of the Congressional
Omce of Technology.
Joseph Bartlett, of counsel in Sullivan & Worcesters
corporate department and former undersecretary of
commerce at the U.S. Department of Commerce.
Maryann Feldman, S.K. Heninger distinguished chair in
public policy at the University of North Carolina, Chapel Hill.
Kate Gordon, VP for Energy Policy at the Center for
American Progress.
Michael Gurau, president, Clear Innovation Partners, a
venture capital investment hrm.
David Hart, director of the Center for Science and
Technology Policy at George Mason University School
of Public Policy.
Christopher Hill, professor of public policy and technol-
ogy at George Mason University School of Public Policy
and former vice provost for research at George Mason.
Neal Lane, senior fellow for science and technology
policy at Rice University and former advisor to the
president on science and technology policy.
Rachel Levinson, director of National Research Initiatives
at Arizona State University and former assistant director
for life sciences at the White House Omce of Science and
Technology Policy.
Jonathan Moreno, Editor-In-Chief of Science Progress
and Senior Fellow at the Center for American Progress.
Arti Rai, Elvin R. Lauy Professor of Law at Duke
University and former Administrator for External
Anairs, USPTO.
Andrew Reamer, research professor at the George
Washington University Institute of Public Policy and
non-resident senior fellow at the Brookings Institution.
RoseAnn B. Rosenthal, president and CEO, Ben
Franklin Technology Partners of Southeastern
Pennsylvania.
Jonathan Sallet, partner in the law hrm of OMelveny
& Myers LLP, Science Progress advisor, and former
director of the Omce of Policy and Strategic Planning
of the U.S. Department of Commerce.
Daniel Sarewiz, director of the Consortium for
Science, Policy, and Outcomes at Arizona State
University.
James Turner, Senior Counsel for Innovation &
Technology, and Director of Energy programs at the
Association of Public and Land-Grant Universities
and former professional stan and chief counsel for the
House Commiuee on Science and Technology.
William A. Wulf, professor of computer science at the
University of Virginia and former president of the
National Academy of Engineering.
Immigration for Innovation
How to Attract the Worlds Best Talent While Ensuring
America Remains the Land of Opportunity for All
Marshall Fitz January 2012
Contents 1 Introduction and summary
5 Background
9 Competing globally in the 21st century
10 Problem: Fraud and gaming the system
12 Problem: Labor mobility restrictions
16 Problem: H-1B visa caps
19 Problem: Employment-based green card backlogs
21 Problem: Limited immigration channels for foreign job creators with new ideas
23 Problem: Workarounds
28 Conclusion
29 About the author and acknowledgements
30 Endnotes
1 Center for American Progress | Immigration for Innovation
Te United States is a nation of immigrant entrepreneurs. From the farmer and
merchant entrepreneurs who hrst seuled in the original 13 colonies to the multi-
tudes of immigrant small business owners and startup founders today, our country
is and always has been a place where creative and skilled people from around the
world can come to realize their dreams. And weve benehted greatly from this.
Immigrants who come to the United States to study at our best universities and then
go to work at our nations leading companies contribute directly and immediately to
our nations global economic competitiveness. High-skilled immigrants who have
started their own high-tech companies have created hundreds of thousands of new
jobs and achieved company sales in the hundreds of billions of dollars.
Yet despite the critical importance of such immigrants to the nations economic
success in the increasingly competitive global economy, our current high-skilled
immigration system is a two-fold failure: Arbitrary restrictions prevent American
companies from enectively tapping the full potential of this talent pool, while inad-
equate safeguards fail to prevent against wage depression and worker mistreatment.
Te reforms outlined in this paper will help establish a 21st century immigration sys-
tem that reaps the fruits of admiuing the worlds best and brightest to promote eco-
nomic competitiveness, while upholding our responsibilities in a global economy.
Of course, our current immigration policies have failed the country on many
fronts beyond the high-skilled policy arena. And the urgent need for com-
prehensive, systemic reforms is beyond question. Te national debate has
understandably focused up to this point on the most visible and most highly
charged issue-ending illegal immigration. And a holistic strategy that com-
bines enforcement with a requirement that current undocumented immigrants
register, pay a hne, learn English, and pay back taxes will spur economic growth
to the tune of $1.5 trillion in cumulative GDP over 10 years. Overhauling our
immigration system and restoring the rule of law is indisputably a national eco-
nomic and security imperative.
Introduction and summary
2 Center for American Progress | Immigration for Innovation
But reforms to our high-skilled immigration system are not only important to
enhance the coherence and integrity of our immigration policies, they are also an
important component of any national strategy to foster innovation and competi-
tiveness.
1
Science, technology, and innovation have been-and will continue to
be-keys to U.S. economic growth. Te United States must remain on the cuuing
edge of technological innovation if we are to continue driving the most dynamic
economic engine in the world,
2
and U.S. companies must be able to recruit inter-
national talent to enectively compete in the international innovation arena.
To be certain, liberalizing our high-skill immigration policies should not be a sub-
stitute for investing in our homegrown workforce. Educating and training a 21st
century U.S. workforce is a paramount national priority and the cornerstone of
progressive growth. Improving access to top-night education for everyone in this
country will be the foundation for our continued global leadership and prosper-
ity.
3
But while our university system auracts the best and brightest minds from
around the world, immigrant students are faced with a tough choice upon gradua-
tion-go home or hnd an employer to sponsor their entry into what amounts to a
louery that might allow them to stay and work. While we subsidize the education
and training of these foreign-born students, our immigration system prevents us
from capitalizing on their collective genius.
We must continue to invest in education here at home, but it is shortsighted in a glo-
balized economy to expect that we can hll all of our labor needs with a homegrown
workforce alone. In fact, our current educational demographics point to growing
shortfalls in some of the skills needed in todays economy.
4
And as global economic
integration deepens, the source points for skill sets will spread-such as green
engineering in Holland or nanotechnology in Israel-the breadth of skills needed to
drive innovation will expand, and global labor pools must become more mobile.
Reforming our high-skilled immigration system will stimulate innovation,
enhance competitiveness, and help cultivate a nexible, highly-skilled U.S. work-
force while protecting U.S. workers from globalizations destabilizing enects.
Our economy has benehted enormously from being able to tap the international
pool of human capital.
5

Even in todays stressed economic climate and nagging job market there is a need to
access that capital. Tis is a counterintuitive assertion against the backdrop of the
ongoing jobs crisis amicting the country. But it bears remembering that we have
dual unemployment rates in the United States: For people with a college degree or
3 Center for American Progress | Immigration for Innovation
higher, the unemployment rate is under 4.5 percent, and in the information technol-
ogy professions, it is approximately 4 percent.
6
Tis is not to downplay the severe
hardships facing unemployed Americans with college degrees. Te nations top
priority for the foreseeable future must be creating jobs at all skill levels.
But facilitating access to international talent and puuing Americans back to work
are not mutually exclusive goals. Te purpose of harnessing that talent is to fuel
economic growth in industries that will create jobs. For example, a 2010 study
by the University of Washingtons Economic Policy Research Center found that
every job at Microson supported 5.81 jobs elsewhere in the states economy.
7

Arbitrary limitations on our ability to access skill sets from across the globe are
clearly self-defeating. Companies will lose out to their competitors making them
less prohtable, less productive, and less able to grow; or they will move their
operations abroad with all the auendant negative economic consequences. And
the federal treasury loses tens of billions of dollars in tax revenues by restricting
the opportunities for high-skilled foreign workers to remain in the United States
and contribute to the national economy.
8
Georgia Institute of Technologys Stephen Fleming, executive director of the
universitys Enterprise Innovation Institute, has demonstrated that access to high-
skilled foreign workers and budding entrepreneurs is a critical priority for many
fast-growing and innovative businesses, as well as for our economic competitive-
ness and growth.
9
But facilitating such access triggers equally critical nip-side
considerations, in particular the potential for employers to directly or indirectly
leverage foreign workers interests against the native workforce.
Current enforcement mechanisms are too weak to adequately prevent fraud and
gaming of the system.
10
And current regulations tie foreign workers too tightly to
a single employer, which empowers employers with disproportionate control over
one class of workers. Tat control enables unscrupulous employers to deliberately
pit one group of workers against another to depress wage growth.
11
Even when
there is no malicious employer intent or worker mistreatment, the restriction of
labor mobility inherently anects the labor market by preventing workers from
pursuing income maximizing opportunities.
Te end goal must be a system that inherently preferences the hiring of U.S. work-
ers, but streamlines access to foreign workers with needed skills, welcomes entre-
preneurs who can garner hnancial backing, and treats all workers employed in the
4 Center for American Progress | Immigration for Innovation
United States on a level plane. Reforms that enhance legal immigration channels
for high-skilled immigrants and entrepreneurs must be complemented with
reforms to ensure that a workers immigration status cannot be used to manipulate
wages and working conditions.
Tis paper digs deeper into the structural dehciencies and enforcement shortcom-
ings in our high-skilled immigration system and oners a number of legislative
solutions designed to:
r
Target employer fraud and abuse of immigrant laborers.
r
Enhance worker mobility for immigrants.
r
Establish market-based mechanism to set H-1B levels for high-skilled immigrants.
r
Raise green card caps and streamline process for all immigrants.
r
Promote entrepreneurship with new visa program.
r
Strengthen recruitment requirements for companies.
r
Restrict job shops that import temporary immigrant trainees and then export
American jobs.
Te recommendations detailed in this report will enhance labor market mobil-
ity and promote economic growth while advancing workforce stability through
enforceable labor standards and protections.
5 Center for American Progress | Immigration for Innovation
Background
Te United States is the home of many of the worlds hnest colleges and universi-
ties, and auracts a signihcant number of foreign nationals who come on temporary
visas to pursue Bachelors and advanced degrees. In some academic helds like
computer and information systems, foreign students receive the bulk of advanced
degrees issued from U.S. universities.
12

Foreign-born U.S. citizen Nobel Laureates
Name Year Field Country of origin
Charles Kao 2009 Physics China
Venkatraman Ramakrish-
nan
2009 Chemistry India
Elizabeth Blackburn 2009 Physiology or Medicine Australia
Jack Szostak 2009 Physiology or Medicine United Kingdom
Yoichiro Nambu 2008 Physics Japan
Mario Capecchi 2007 Physiology or Medicine Italy
Oliver Smithies 2007 Physiology or Medicine United Kingdom
Anthony Leggett 2003 Physics United Kingdom
Riccardo Giacconi 2002 Physics Italy
Herbert Kroemer 2000 Physics Germany
Eric Kandel 2000 Physiology or Medicine Austria
Ahmed Zewail 1999 Chemistry Egypt
Gunter Blobel 1999 Physiology or Medicine Germany
6 Center for American Progress | Immigration for Innovation
Our immigration system is a Byzantine patchwork of dierent visas
designed to address specic needs or interests. Broadly speaking,
our system is divided into temporary and permanent immigration
categories. We have 70-plus dierent temporary visa categories and a
couple dozen permanent resident categories.
13
Excluding temporary
visas issued for people traveling to the United States on business trips
and vacations, the Department of State issued around 1.8 million
nonimmigrant visas in 2010.
14
And around 1.0 million foreign nation-
als obtained permanent resident statuscolloquially referred to as
green card statusin that year.
15


The various types of employment visa categories makes any generic
denition of high-skilled immigration inexact. For purposes of this
report, high-skilled immigration encompasses programs authorizing
individuals to work in the United States based on qualications that
include at least a bachelors degree or equivalent experience. Only
214,672 of the 6.4 million nonimmigrant visas issued in 2010 were
issued to high-skilled professionals.
16
That number includes individu-
als who had already been admitted and were obtaining a new travel
visa, as well as individuals who never entered. Only around 70,000
of the permanent employment-based visas issued in 2010 went to
sponsored workers. In addition, 10,000 are set aside for low-skilled
workers so the total number of high-skilled immigrants that were
granted permanent residence in 2010 was around 60,000.
17


An employer typically sponsors a worker for temporary employment
in one of the many categories. Several of the most common examples
for high-skilled workers include
t
H-1B visas used to hire professionals
t
L-1 visas for intracompany transferees
t
O-1 visas for individuals with extraordinary ability
t
J-1 visas for doctors, scholars, trainees, and researchers.
18

Each category serves discreet interests, imposes separate require-
ments, and creates unique obligations and limitations on the visa
holder (the worker) and the sponsor (the employer). Some of these
categoriessuch as H-1B and L-1authorize the employer to begin
the process of sponsoring the visa holder for permanent residence.

When an employer sponsors their foreign national employee for
permanent residence, this normally involves rst testing the U.S.
labor market to assess whether there are qualied U.S. workers to
perform the position in question. The employer cannot proceed with
the green card process for a foreign national worker if they can nd
a qualied U.S. worker. It is not a requirement to rst test the labor
market in a limited number of cases, such as transfers of high-level
managerial personnel from operations abroad.

The employment-based green card process is subject to strict numeri-
cal limits that lead to lengthy, multi-year backlogs for applicants. The
annual numeric caps limit the overall number of employment-based
green cards as well as the number of green cards that can go to
employees in certain types of jobs, with certain types of backgrounds,
and from any one country.

Our current system requires Congress to create new channels each
time a new need emerges, or restrict old channels if abuse is per-
ceived. Congress, of course, is less than nimble, and it is no easy feat
to legislate new visa categories into or out of existence. The conse-
quence is an immigration system that responds glacially to changing
national interest and economic needs.

This piecemeal mishmash of visa categories lacks a unifying vision.
Multiplicity, rather than exibility, is the hallmark of our system.
Uncoordinated multiplicity leads to silos, which leads to rigidity and
incoherence. Think tax code and you start to appreciate the immi-
gration systems complexity.
High-skilled immigration basics
Many of these foreign students return abroad following completion of their studies,
but others want to remain in the United States and seek a work-authorized visa fol-
lowing graduation. Indeed, these students onen choose to study in the United States
based in large part on the ability to pursue professional opportunities in this country
7 Center for American Progress | Immigration for Innovation
aner graduation. Yet annual numeric limits on the number of available employment
visas create roadblocks for students seeking to remain in the United States. As the
President of Stanford University John L. Hennessy has recently argued:
More than 50 percent of our PhDs in engineering come om outside the U.S.
Now 38 percent of our PhDs in the physical sciences come om outside the U.S.
We spend between a quarter and a half a million dollars per student to educate
somebody to the level of a PhD, and then you want to send them out aer weve
made this investment? is is a silly thing to do. We need to keep them in.
19
Tese roadblocks have created openings for universities and employers in other
countries to recruit them. A number of competitor countries have streamlined
their immigration policies to make it easier for their companies to recruit interna-
tional talent.
20
Tat has, in turn, led some prospective students to pursue educa-
tional opportunities in other countries.
Foreign student interest in U.S. colleges and universities peaked in 2005 and has
not reached those levels since then although applications and admissions are
climbing again.
21
A Council of Graduate Schools report found that problems with
obtaining work-authorized visas following graduation was one of the reasons for
the decline in international enrollment.
22

Any decrease in foreign student enroll-
ment, particularly in advanced degree
programs in the STEM helds, raises
concerns because of the enect that
high-skilled foreign nationals have
had on innovation and job creation.
A 2007 study by Duke University and
University of California, Berkeley
professors found that 25 percent
of the technology and engineering
companies started in the United States
from 1995 to 2005 had at least one
key founder who was foreign-born.
23

Te study further reported that in
2005 these immigrant-founded companies produced $52 billion in sales and
employed 450,000 workers nationwide.
FIGURE 1
Year-to-year percent change in international applications
and offers of admission
2003 to 2004 through 2010 to 2011
Applications
Oers of admission
20%
10%
0%
-10%
-20%
-30%
-40%
2003
to 2004
2004
to 2005
2005
to 2006
2006
to 2007
2007
to 2008
2008
to 2009
2009
to 2010
2010
to 2011
Oers of admission data for 2011 are preliminary. All
other data points reect nal gures.
Source: CGS International Graduate Admissions
Survey, Phases II and III, 2004 to 2011
8 Center for American Progress | Immigration for Innovation
Te legitimate objective behind limiting the supply of high-skilled visas is to pre-
vent employers from using unfeuered access to foreign workers to deleverage U.S.
workers. But restricting the supply of such visas potentially undermines another
important goal: maximizing opportunities for economic growth by enhancing our
competitiveness. Tis article proposes targeted reforms to ensure that our high-
skilled immigration policies lin up economic growth and worker protection as
twin goals rather than competing alternatives.
Immigrant-founded companies
Company Name Revenue Number of people employed
Comcast Corporation $37.94 billion 102,000
Intel Corporation $43.62 billion 82,500
Google Inc. $29.32 billion 24,400
Life Time Fitness, Inc. $912.84 million 19,000
eBay Inc. $9.15 billion 17,700
Yahoo! Inc $6.32 billion 13,600
Source: The Wall Street Journal - Market Watch http://www.marketwatch.com
9 Center for American Progress | Immigration for Innovation
Competing globally
in the 21st century


Our high-skilled immigration policies fail to adequately promote and protect
important national interests. Restoring the systems integrity and functionality
through a combination of strong enforcement and structural reforms is a neces-
sary component of our innovation agenda.
Arbitrary numeric limitations and other programmatic restrictions diminish
economic emciency and stymie growth while preventing labor mobility. Tey also
lead companies to pursue workarounds that can warp business practices, precipi-
tate onshoring, and limit the ability of U.S. workers to compete. Layered on top of
a weak enforcement regime, these problems undermine the benehts provided by a
robust and nexible high-skilled immigration system.
Te recommendations in the following pages will help realign our high-skilled
immigration policies with our responsibility to U.S. workers and our national
interest in global competitiveness. Tey are designed to restore the integrity of the
system while enhancing mobility for workers and nexibility for employers. Te
goal is to make the system more emcient, enable employers to be more competi-
tive and productive, and empower workers to compete on a level playing held
rather than being piued against one another in a race to the bouom.
Several basic premises underlie the following recommendations. Tey are:
r
Global economic integration will continue to deepen.
r
Tis integration can have destabilizing enects on certain sectors of the workforce.
r
Sustainable economic growth depends on our ability to remain on the cuuing
edge of technology and innovation.
r
Te global marketplace for international talent is expanding, not shrinking, and we
refuse to shop there at our competitive peril.
r
We must help our home grown workforce develop 21st century skills so changes to
immigration policy are only one small response to the economic challenges we face.
10 Center for American Progress | Immigration for Innovation
Bearing these premises in mind, lets examine the problems and the solutions to
our high-skilled immigration needs.
Problem: Fraud and gaming the system
As with any highly regulated government program, some participants seek to
game the immigration system for competitive advantage. Given the complexity
of the regulatory scheme, some employers run afoul of rules inadvertently, others
hnd loopholes that make them compliant with the leuer but not the spirit of the
rules, and still others commit outright fraud.
Fraud is a serious problem in the system, even if the incidence is fairly low. Willful
violations that go undetected and unpunished clearly undermine both the integ-
rity and the policy objectives of our immigration programs for the highly-skilled.
Workers are not provided the protections required by law, and legitimate employ-
ers must compete on an uneven playing held. Fraud undermines public conh-
dence in visa programs whose proper functioning is a crucial component of the
countrys economic strength. And public and political revulsion at visa program
abuses can lead to policy proposals that exceed the scope of the problem and run
counter to national interests.
Te Department of Homeland Security determined in an assessment of the H-1B
program that violations are predominantly commiued by small, new companies,
rather than well-established companies.
24
It concluded that many of the identihed
violations are in areas where enforcement of existing rules could curb abuses, or
where small changes to the rules would allow proper enforcement.
Unsurprisingly, most employers (80 percent) fully comply with program require-
ments.
25
And many of those who are not in complete compliance have commit-
ted only minor and unintended violations of complex rules that do not renect an
intention to game the system (7 percent). Yet an evaluation of those employers
(13 percent) who were identihed as willful violators makes clear that more delib-
erate steps are necessary to restore the integrity of the system.
26
For example, visa fraud by a small company in Iowa highlights the kinds of
abuses that can occur and that need to be stopped.
27
Te IT services hrm
Visions Systems Group was indicted on 10 federal counts involving submiuing
falsihed documents in support of their workers visa applications.
28
In addi-
11 Center for American Progress | Immigration for Innovation
tion, H-1B visa workers were allegedly placed in locations on the East and West
coasts while claiming employment in Iowa where wage minimums would be
lower, thereby violating existing wage laws. Vision Systems pleaded guilty to a
felony charge and paid restitution of $236,250.
29

Te prosecution of several recruiting companies in 2004 highlighted another
vein of fraud and abuse. Starting in 2001, hundreds of teachers recruited from
the Philippines on H-1B visas were falsely told they had jobs waiting for them
and could gain permanent residence in the U.S. Te recruiters allegedly conhs-
cated their documentation and housed them in substandard housing, required
them to seek permission to leave the premises, and barred them from having
their own transportation. In spite of these circumstances, the most serious
charges were dropped in a plea bargain and the companies were only sentenced
to three months probation. We clearly need to prevent this type of fraud and
abuse with more serious penalties for violators.
30
More recently, one of the biggest users of H-1B visas, Infosys, is accused of
misusing B-1 visas in order to get around H-1B limitations and of increasing the
value of their stock by charging customers the higher H-1B pay rate for the labor
cost of B-1 holders.
31

Solution: Target fraud and abuse
Te government has already initiated and dedicated substantial resources toward a
number of fraud detection initiatives.
32
Te results of those enorts can help point
the way toward a more robust and enective enforcement regime.
U.S. Citizenship and Immigration Services made public an H-1B Beneht Fraud
and Compliance Assessment over a year ago. Tis assessment identihed clear
trends of fraud and other program violations, typihed by such problems as:
r
Nonexistent or shell petitioning employers.
r
Employers not paying salaries they had promised-and been required-to pay.
r
Employees not having the promised degrees or other qualihcations.
r
Employees not performing qualifying responsibilities.
12 Center for American Progress | Immigration for Innovation
Te assessment concluded that violations were more common among smaller-
more recent-more poorly capitalized employers. And it indicated that these
violations were overwhelmingly susceptible to detection through site visits-a
fairly straightforward and easily available form of investigation and enforcement.
In response to the assessment, USCIS has begun a more robust site visit pro-
gram,
33
issued clarifying memoranda related to some of the hndings, held a
number of stakeholder meetings, and initiated training sessions.
34
But clearly there
must be continued focus on the issue designed to result in beuer, more targeted
enforcement policies.
35

Enforcement policy reform should be based on lessons already learned. It
should be forceful and targeted as closely as possible at identihed problems so
that it does not undermine responsible and careful program users. Congress can
help protect all workers against abuse and good-faith employers against unfair
competition. It should:
r
Provide authority for the Department of Labor to do a more thorough, but still
timely, review of the labor condition application that employers submit to
initiate an H-1B petition.
r
Eliminate unnecessary restrictions on DOL investigative authority and increase
DOL enforcement resources.
r
Require DOL to conduct investigations of employers whose workforce is made
up of more than 15 percent H-1B workers.
r
Require proof of payment of required wages before a visa can be renewed.
r
Facilitate improved coordination among the relevant agencies, especially DHS
and DOL, so that information provided to one agency in the process can be
checked against that provided to another.
r
Strengthen agency authority to impose enective penalties against violators.
Problem: Labor mobility restrictions
Other elements of the employment-based immigration system can also warp the
labor market. A primary concern rests in the potential for a sponsoring employer
to exert disproportionate leverage over foreign workers. When a worker is bound
to a single employer, it anects other similarly situated workers employed by the
same employer or competitors. Says chairman of the White House Council of
Economic Advisers Alan Krueger:
13 Center for American Progress | Immigration for Innovation
Job shopping is an essential protection against exploitation and inecient
allocation of-re sourceIf [temporary workers] do not have the opportunity to
change jobs with minimal administrative burden, other workers in the United
States will potentially suer because employers will have some scope to exploit
guest workers and lower labor conditions more generally.
36
If an employer is able to signihcantly constrain a worker from exercising his or
her rights or competing for the best job opportunity, it creates an advantage for
the employer.
As noted above, the dinerent visa categories carry dinerent restrictions. Some
employment visas permit more job mobility than others, but for the most part, a
foreign worker is tied to a single employer until he or she receives legal permanent
residence. For instance, an employer must sponsor a foreign worker on an H-1B
visa to work in a specihc position at a specihc salary. In order for that worker to
change jobs within the company, the employer must hle a new H-1B petition with
the government authorizing the change of position. In order for that worker to
change employers, he or she must wait until the new employer hles a petition on
his or her behalf.
Two factors diminish the foreign workers mobility. First is the requirement that
visa holders maintain their immigration status or be subject to long-term repercus-
sions, including in some cases bars on re-entering the United States. An H-1B visa
holder who quits his or her job or is terminated must secure immediate sponsor-
ship from a new employer or risk falling out of status. If he or she fails to secure
such sponsorship and does not leave in timely fashion, a subsequent petition hled
by a new employer will be denied and other consequences may auach. In short,
H-1B visa holders remain tied to their employers unless and until a new employer
hles a petition. Tis diminishes visa holders ability to assert their rights by walk-
ing away from an abusive employer.
14 Center for American Progress | Immigration for Innovation
ONCAMPUS RECRUITING
Attend school with F-1 visa, which provides lim-
ited employment and o-campus opportunities
Time: Two to four years
OPTIONAL PRACTICAL TRAINING
Participate in International student program,
which provides full employment authorization
Time: One year or 29 months for STEM workers
POSSIBLE BREAK IN EMPLOYMENT
AUTHORIZATION DUE TO H1B CAP
EMPLOYER FILES H1B PETITION WITH USCIS
Time: Up to six months
EMPLOYEE APPLIES FOR H1B VISA AT U.S.
CONSULATE ABROAD AND ENTERS THE COUNTRY
TO START WORK
Time: A few days to six months
EMPLOYER FILES H1B CHANGE OF
EMPLOYER PETITION WITH USCIS
Time: Approximately one month;
can begin work with proof of ling a
non-frivolous petition
ALREADY EMPLOYED IN THE UNITED STATES
Typically already hold H-1B status
OVERSEAS RECRUITING
Immigration steps for most high-skilled workers
H1B SPECIALTY OCCUPATION WORKERSTATUS
Time: Three years with one extension of three more
years, plus additional yearly extensions in limited
circumstances
LABOR CERTIFICATION WITH
DEPARTMENT OF LABOR
Test of U.S. job market to determine nonqualied
and available U.S. workers.
Time: Eight months to two years of preparation and
DOL processing
IMMIGRANT VISA PETITION I140
Based on approved labor certication application
Time: 10 to 18 months
WAIT FOR IMMIGRANT VISA NUMBER
Time: May be seven years or more depending on the
occupation and country of birth
FILE ADJUSTMENT APPLICATION I485
Time: One to two years
TOTAL TIME TO OBTAIN A GREEN CARD ONCE
SPONSORSHIP BEGINS: 2.5 TO 12.5 YEARS
15 Center for American Progress | Immigration for Innovation
Tis is not a problem in most circumstances because most employers are not abu-
sive and most workers will not leave a current job until a new one is lined up. But
the extra steps that are required to obtain new sponsorship and the interim limita-
tions on mobility do establish a dynamic in which employers possess greater innu-
ence over their employees than in traditional at will employment situations. Tat
dynamic in turn hurts all workers and undermines employer competitiveness.
Te second feature of the current system that diminishes worker mobility is
the general requirement that an employer sponsor a foreign worker for perma-
nent residence. Te sponsorship process can take years because of the disparity
between the number of temporary and permanent visas available annually. And in
most cases, if the worker leaves to join another employer, he or she must start the
green card process all over again.
Tis lengthy process accords the employer another axis of leverage over the
worker. Te most obvious concern is that an unscrupulous employer can exert
excessive control over the visa holder by lording permanent residence over his or
her head. But even in the normal course, the inability to freely change employ-
ers-or even jobs with the same employer-and maximize earning potential
during that time can have a depressing wage enect.
The solution: Enhance worker mobility
Workers ability to change employers at will promotes emciency in the labor mar-
ket and helps prevent employer abuse. If employers underpay, overwork, or oth-
erwise mistreat workers, the workers can leave and the employers eventually lose
their workforce or cease their unscrupulous practices. Te corollary, of course, is
that when workers are not free to change jobs, their employers have undue lever-
age over wages and working conditions.
A central problem with current high-skilled immigration programs is that they
bind workers too tightly to a single employer. Even though most employers do
not intentionally misuse their leverage over these workers, the power dinerential it
creates can anect both foreign workers and similarly situated U.S. workers. Te net
result can be a slight depression of wages.
37
Enhancing the portability of foreign workers should be relatively uncontroversial
for employers that hire based on who is best for the job and not based on who
16 Center for American Progress | Immigration for Innovation
they can exert the most control over. It is true that the employers have invested in
the worker by paying the costs of sponsorship, but that should be considered part
of the cost of hiring foreign workers, not a premium that allows the employer to
exert special control over the worker.
To balance the playing held for workers and employers, Congress should:
r
Establish a statutory grace period for hred workers to hnd a new job rather than
maintaining the current rules, which make them immediately deportable and
subject to additional penalties for unlawful presence.
r
Revise the rules regarding the permanent residence process to allow sponsored
workers to change to a dinerent employer earlier in the process.
r
Permit expanded categories of high-skilled temporary workers to self-petition
for permanent residence.
r
One possibility that Congress should consider is to authorize self-petitioning
aner a certain time, such as 18 months.
38
Another possibility is to authorize
self-petitioning for individuals working in high-employment industries with, for
example less than 2 percent unemployment.
Problem: H-1B visa caps
Te most widely used high-skilled immigration classihcation for temporary workers
is the H-1B visa. Te availability of H-1B visas in our current system is regulated by
a congressionally established annual numeric ceiling-or cap as it is commonly
called. Te current annual allotment of new H-1B visas is set at approximately
85,000, including 20,000 that are reserved for individuals with an advanced degree
from a U.S. college or university.
39
Tat number was drawn from the political ether,
not from any concrete policy analysis or any specihc economic indicators. And the
last decade has clearly demonstrated just how arbitrary these numbers are.
We have repeatedly seen over the last decade that demand in the H-1B program
tracks the business cycle, and not in a way that would indicate that employers
rely on the program to hire cheap labor. When the economy is humming and job
growth is robust, demand for high-skilled foreign workers rises despite the addi-
tional costs and the time it takes to hire a worker permanently.
17 Center for American Progress | Immigration for Innovation
When the economy is in retreat and losing jobs, the demand for such workers
declines signihcantly. If employers thought these workers were a good source of
cheap labor, one would expect usage to rise during belt-tightening periods. Te
opposite appears to be true.
Te current cap has clearly proven insumcient to meet employer demand in a
booming economy. When the economy ran hot in recent years, there was so much
demand for these foreign professionals that the cap was exceeded on the hrst day
of the hling period.
40
For hscal year 2008, some 150,000 petitions were hled on
the hrst day, April 1, 2007, for 85,000 slots.
Tis supply-demand mismatch creates two problems, each economically self
defeating. First, when the H-1B supply is exhausted in April, no petitions can be
hled for students who will receive bachelors degrees in May or June. Tis excludes
an entire years worth of graduates from access to visas aner four years of U.S. edu-
cation.
41
We have invested in their education. We should at least have the opportu-
nity to see a return on that investment.
Second, the immigration service had to create a louery system to determine who
can receive a visa due to the surge of petitions that were hled on the hrst day. Te
terms sound economic planning and louery rarely ht well together. Requiring
employers to organize their onen-complex recruitment and hiring processes in
order to hle a petition on a specihc day each year-six months in advance of a
From temporary worker to green card
Fees Cost to employer
H-1B petition for FY 2010 $2,320
H-1B application cost $131
Visa petition led with USCIS $475
H-1B extension $1,820
AC21 extension $320
Spouses work authorization and visa application $262
Applications to adjust status to that of permanent resident $2,020
Extend H-1B status $320
Legal fees $10,000
Total $17,668
18 Center for American Progress | Immigration for Innovation
potential hire, with no guarantee that they will actually be able to hire the per-
son-creates obvious and enormous inemciency. Tis artihcial timeline and
the auendant uncertainty of the louery process render employers unable to hire
foreign workers in real time to respond to real and changing needs.
42
Tat in turn
may stall or kill business projects that could create jobs and economic opportuni-
ties, which is plainly contrary to our national interest.
43

Weakness in the economy appears to serve as a reasonably enective governor on
H-1B hlings. As in prior economic downturns, there has been a precipitous drop
on in H-1B hlings during the recent recession. Nearly double the annual allotment
of applications was hled on April 1, 2008, the hrst day of the hscal year 2009 hling
period. While the hscal year 2010 cap
44
was not reached until eight months aner
the hling period opened up. It took even longer for the cap to be met in hscal year
2011.
45
Still, even with signihcantly decreased demand, the annual allotment of visas
has been reached well before the end of the hscal year. Tat means that employers
are barred from hiring new H-1B workers during an extended period, suggesting
that the 85,000 hgure may be insumcient to meet the needs of U.S. employers.
Of course, the linkage between demand for H-1B workers and the ebb and now of
the business cycle does not in itself prove the existence of skills shortages or that
H-1B workers are not sometimes used to deleverage U.S. workers. It does, how-
ever, rebut the narrative that employers are only looking to these foreign workers
as a source of cheap labor. It is undoubtedly true that some employers view the
hiring of H-1B workers as a less permanent human resource investment and thus
a preferable, less costly alternative even in a down economy. But it is equally true
that many employers sponsor a large percentage of their H-1B employees for per-
manent residence,
46
layering substantial additional costs onto long-term worker
investment and negating the cheaper alternative argument.
In short, while there is clearly a supply-demand disconnect, no general conclu-
sions about the motivation for hiring H-1B workers can be elucidated from
demand cycles. It appears more likely that employers pursue such workers for
a multiplicity of reasons, some more consistent with our national interest than
others. Instead of using an arbitrary annual cap that limits both good and bad
program usage, we recommend a basket of reforms to ensure that employers using
the program hire high-skilled foreign workers because they are the best recruits
for their enterprise, not because they are a cheaper alternative.
19 Center for American Progress | Immigration for Innovation
The solution: Establish market-based mechanism to set H-1B levels
Arbitrary numeric limitations in the H-1B program serve no clear national interest
except to prevent the possibility of widespread employer abuse of the program. Te
federal government should adopt instruments to minimize the risk of misuse as
described elsewhere in this paper, but the artihcial visa ceiling should be adjusted
to respond to the demands of the U.S. economy and avoid forcing those we edu-
cate in this country to compete with us abroad. Congress should:
r
Establish a market-based mechanism that allows the H-1B supply to grow and
shrink as the demand for additional workers nuctuates. Such a market-based esca-
lator will not be perfect in that annual increases and decreases would lag slightly
behind the demand curve, but it would establish a more realistic band of ranges.
An annual noor and ceiling should be established-for example, between 60,000
and 120,000-that would not nuctuate absent further congressional action to
serve as an additional check on excessive increases or decreases in supply.
47

r
Maintain exemptions for those with advanced degrees from U.S. universities
and for those entering certain high-demand helds.
r
Create a pre-immigrant visa for professionals whose employers intend from
the start to sponsor them as permanent residents. Tis visa must be accom-
panied by wage and working condition requirements to protect U.S. workers,
and must require the employer to begin the green card sponsorship process
promptly. Tis visa would help diminish the artihcial use of temporary visas.
Problem: Employment-based green card backlogs
A signihcant disconnect exists between the annual allocation of temporary and per-
manent employment-based visas. Tat disconnect has generated enormous dysfunc-
tion throughout the system. Only 140,000 employment-based permanent visas, or
green cards, are available each year for workers and their spouses and children.
48

Most employment-based green cards are granted to foreign professionals who
are already here and working on a temporary visa. But the short supply, which
has not been updated in nearly two decades, has created years-long backlogs.
Employment-based green card numbers have been unavailable to professionals
holding bachelors degrees during most of the past year, for example, no mat-
20 Center for American Progress | Immigration for Innovation
ter how long ago they started the green card process.
49
Even individuals with
advanced degrees face multiyear backlogs if they hail from certain countries.
50

Tese backlogs mean that sponsored workers can be stuck in the same job for
years-in some cases as many as eight or nine years. Tied to a single sponsor-
ing employer, these workers are prevented from asserting their right to pursue
income-maximizing opportunities. Tat stagnation creates a depressing enect on
the labor market, hurting all workers. Moreover, spouses of the sponsored princi-
pal are prohibited from working throughout the entire period. Tat obviously cre-
ates an unhealthy dynamic in which one spouses career must remain in abeyance
until the protracted green card process concludes.
Legitimate employers feel the enect as well. Because sponsored workers must
typically remain in the position for which they were sponsored, employers are not
able to move workers into more productive capacities.
Personal, company, and government resources are wasted as temporary visas,
travel documents, and other similar items must be constantly renewed. And work-
ers and their families face tremendous dimculties in securing loans to purchase
homes, enrolling in universities as in-state residents, and pursuing career opportu-
nities for spouses.
What this increasingly means is that highly talented, highly productive profession-
als who have been educated in U.S. schools take their brainpower elsewhere.
51
Tis
ultimately harms the U.S. economy and the American worker.
The solution: Raise caps and streamline the process
Te annual allocation of permanent residence visas should be realigned to renect
the reality that many workers on temporary visas intend to remain in the country
permanently. Enabling them to become permanent residents more quickly and
with fewer auachments to a single employer enhances their productivity and mini-
mizes their ability to be unfairly leveraged against U.S. workers. Congress should:
r
Increase overall green card numbers to clear the existing multiyear backlog of
high-skilled professionals awaiting permanent residence.
21 Center for American Progress | Immigration for Innovation
r
Raise or eliminate per-country quotas on employment-based green cards. It
makes liule sense to subject nationals from high-sending countries such as India
to the same annual limitations as nationals from Liechtenstein.
r
Exclude derivatives (family members) from counting against the annual cap.
Tere is an annual cap of 140,000 on employment-based green cards, and only
around 60,000 visas actually go to workers. Te rest of the allocation is absorbed
by derivative family members who count against that 140,000 ceiling.
r
Exempt graduates of U.S. universities with advanced degrees in science, technol-
ogy, engineering, and math, or STEM, helds from the annual green card cap.
r
Provide employment authorization to spouses of principals who have been
stuck in the green card backlogs for more than three years.
r
End the requirement that foreign students may study here only if they can prove
they intend to leave aner graduation. Some may object to puuing these foreign
students on even footing with U.S. students in competing for jobs aner gradu-
ation. But that competition already exists in one shape or form anyway, since
companies are increasingly opening omces abroad.
Te more dimcult we make it for U.S. companies to compete for international
talent, the more jobs will move beyond our borders. Puuing all advanced degree
graduates from U.S. universities on a more even footing ensures that native-
born students can compete on a transparent playing held. Te alternative is for
American workers to try and compete in a warped talent market where businesses
contort their operations to access talent in dinerent parts of the world. Instead of
bringing the workers to where the jobs are, companies will increasingly be forced
to move the jobs to where the workers are.
Problem: Limited immigration channels for foreign job creators
with new ideas
Many of the top young minds graduating from U.S. universities STEM helds are
foreign nationals. In fact, nearly a quarter of all advanced degree graduates in these
helds from our nations universities are foreign students. For example, 66 percent
of Ph.D.s in electrical engineering were issued to foreign nationals in 2009. And
between half and two-thirds of all Ph.D.s went to foreign students in the following
22 Center for American Progress | Immigration for Innovation
helds: industrial engineering, civil engineering, mechanical engineering, materials
engineering, chemical engineering, economics, physics, and computer science.
52

More to the point, individuals with these STEM backgrounds are the primary driv-
ers of technological innovation.
53
Tat innovation is the foundation for new business
enterprises and a central ingredient in job creation strategies. Tis means that the
next great idea, the next great scientihc breakthrough that could eventually produce
thousands of new jobs is likely to come from these young graduates. But when
the holder of that idea is a foreign student or a foreign national who would like to
develop the product or technology in the United States, there is no obvious way for
them to do so. Tey may be able to hnd employment with a university or research
facility that can sponsor them for an employment visa. And they may be able to col-
laborate in that seuing on new research that leads to the issuance of important pat-
ents. Indeed, noncitizens make up an estimated one-quarter of all patent applications
from the United States.
54
But their enorts in that regard will be constrained by the
dictates of the employing entity rather than the inspiration of their creative minds.
A comparable native born innovator can pitch their big idea and, if persuasive,
secure hnancial backing to develop it and launch a business around it. Tat we
would prevent a foreign innovator from pursuing the same idea makes liule
sense. In most cases, that foreign national is not competing with an American
inventor. But by driving them to pursue their idea and start their business in
another country, our immigration system transforms them into a competitor.
Instead of helping create jobs in the United States, our immigration system pro-
motes the creation of those jobs abroad.
Solution: Promote entrepreneurship with new visa program
Our byzantine immigration system provides visas for a wide array of activities,
but there is no channel in the labyrinth for nedgling entrepreneurs with the next
great idea. Many of these potential innovators and job creators are already in the
United States on student visas or temporary work visas. But they are blocked from
pursuing their great idea and we are prevented from reaping the potential fruits of
that idea realized.
If someone has a business concept that can garner substantial capital investment
and that will create jobs for U.S. workers, we should do everything possible to
auract, not repel them.
23 Center for American Progress | Immigration for Innovation
Congress should:
r
Pass legislation designed to facilitate the entry of foreign entrepreneurs who
have business plans backed by capital investment.
r
Enact the new entrepreneur visa and its renewal should be conditioned on
meeting investment or revenue and job creation benchmarks.
55
Problem: Workarounds
When no legal avenue exists to hire a specihc worker, but there is a manifest need
to do so, some employers will accept defeat and scale back their plans. Tat can
mean forgoing development of a new product or delivery of a new service that
could create more jobs. Other employers will search for workarounds to the hiring
obstacle either by trying to push the limits of the law or by ignoring it altogether.
Te workaround has been hiring undocumented workers on the low-skilled end of
the spectrum where employers have confronted a shrinking U.S. workforce keyed
to those jobs and virtually no legal channels to hire foreign workers.
56
Te know-
ing hire of such workers is a clear and direct violation of the law. Te more typical
situation is that employers turn a blind eye to suspicions because the alternative is
to leave positions unhlled.
Workarounds on the high-skilled end assume dinerent forms. Some employ-
ers will try to shoehorn a worker into a visa category that has available slots, but
doesnt really ht. Tat creates extra work for the government in the adjudica-
tions process and potentially dilutes those other visa categories from their actual
purpose.
57
Other employers will conclude that the business impediments to hiring
the necessary workforce are severe enough that they move some or all of their
operations abroad.
58
Tere has been some debate about the economic impact of
onshoring,
59
but it is dimcult to argue that it does not hurt U.S. workers.
Still other employers are technically compliant with program rules but are con-
ducting operations that contravene policy goals-such as high-volume job shops
where most of the companys operations are actually abroad.
60
Companies are
able to hire H-1B visa workers in the United States to serve as an on-site presence
while they coordinate mainly onshore activities.
61
Nothing in the law stops com-
panies who want to use H-1B visas as a training program for future outsourcing.
Some U.S. companies have required laid on workers to train H-1B visa holders as
24 Center for American Progress | Immigration for Innovation
part of the companys knowledge transfer operations and as a condition of their
severance pay.
62
Tese workers subsequently return to headquarters in India and
are farmed out to on-shored U.S. companies with their newfound skills.
63

Onshoring of some jobs is inevitable in a global economy. But our national regula-
tory policy should not promote the practice. Making it too dimcult to hire work-
ers from the global talent pool and driving companies abroad is an anti-growth
strategy that diminishes U.S. workers ability to compete. Tat is natly contrary to
our national interest.

Top 10 H-1B employers
Rank Company Number of H-1B visa petitions
1 Microsoft 2,505
2 IBM 1,263
3 Infosys Technologies 1,058
4 Deloitte Consulting 887
5 Fujitsu Laboratories of America 747
6 Cognizant Technology Solutions 645
7 Patni Americas 540
8 CVS Pharmacy 499
9 Qualcomm 472
10 Larsen Toubro Infotech 418
11 Intel 404
12 Wipro 403
13 Goldman Sachs 387
14 Oracle 376
15 Barclays Capital 366
16 Google 355
17 Hewlett Packard 340
18 National Institutes of Health, Hhs 338
19 UST Global 317
20 Tata Consultancy Services 311
Tese workarounds-shoehorning and onshoring-are by-products of an innexible
system. And forcing companies to make a choice between forgoing opportunity
Source: My Visa Jobs, Top 100 H1B Visa Sponsors -2011 H1B Visa Report, available at
http://www.myvisajobs.com/Reports/Top-VisaSponsor-2011.aspx
25 Center for American Progress | Immigration for Innovation
and engaging in workarounds harms our nations economic interests. We obviously
want businesses to seize growth opportunities. But forcing them to do so through
workarounds is inemcient and warps the playing held for U.S. workers.
Solution: Strengthen recruitment
Employers make a variety of nuanced but important judgments in their hiring
processes that cant be distilled to a comparison of resumes. Employers must be
prohibited from considering impermissible factors such as race, ethnicity, and
gender in making hiring decisions. But the federal government also should not be
placed in the untenable position of micromanaging judgments about who the best
candidate is for a private sector job.
Requiring companies to hire equally qualihed U.S. workers over foreign workers
makes sense in principle. But puuing such a requirement into practice transforms
the real world hiring process into an artihcial exercise. Employers would be in the
position of having to justify to a government investigator-for years aner the fact-
why one individual was hired over every other applicant. Such a process would give
employers an incentive to make a decision on who is best for the job and then build
paper benchmarks as a bulwark to justify decisions against government scrutiny.
Tis doesnt mean that we shouldnt strongly encourage employers through incen-
tives to train and hire U.S. workers. We dehnitely can and must.
64
Te massive
investment in jobs included in the American Recovery and Reinvestment Act
of 2009 was just one example of the national commitment we need to continue
growing jobs for U.S. workers.
65
Investment in clean energy presents another
opportunity to advance the quality and range of jobs available to U.S. workers.
66

And the education and training revenues generated from the H-1B user fees
should be augmented and leveraged to increase opportunities for U.S. workers to
seize these new opportunities.
67

What it does mean is that empowering the government to second-guess basic hiring
decisions is inemcient and will undermine our pro-growth objectives without actu-
ally protecting U.S. workers. Te solution is therefore to require employers who seek
to hire high-skilled foreign workers to demonstrate that they truly are making mean-
ingful and enective enorts overall to hire U.S. workers when hlling open positions.
26 Center for American Progress | Immigration for Innovation
Te Labor Department can enectively review whether an employer has an overall
recruitment process that shows it is engaged in serious and sumcient labor market
recruitment. If employers are mandated to show real recruitment that meets or
exceeds industry standards, it will prevent a race to the lowest possible wage.
Congress should:
r
Require employers to establish and document an overall system of recruitment
that hrst targets U.S. workers and that meets or exceeds industry standards for
recruitment of similarly situated workers.
68

r
Create a severe penalty scheme for employers who fail to pay the prevailing or
actual wage for the position.
r
Increase the H-1B education and training user fees and reassess allocation of
such fees between the National Science Foundation and Department of Labor
to ensure that the funds are maximizing opportunities for U.S. students and
workers to compete for high-skilled jobs.
69
Solution: Restrict job shops
Te basic goal of our high-skilled immigration regime should be to enhance the
competitiveness of U.S. employers by enabling them to tap top-night international
talent and workers with specihc skill sets. Te goal is not to provide a limitless
pool of entry-level workers who, in the aggregate, can drive down the native born
workforces wages. But companies who identify specihc needs that they cannot hll
with the native workforce should be able to access foreign workers while guaran-
teeing wages that protect against wage denation for all workers.
One business model that comports with the leuer of the law but not its spirit is the
job-shop.
70
Tese businesses provide a staging ground for foreign workers to come to
the United States, develop skills, and then go home to facilitate operations that com-
pete with U.S. companies. In a sense, they help train foreign workers in the United
States with skills needed to onshore information technology services and U.S. jobs.
Of course, individuals who come to the United States for education or experience
will always be entitled to take that knowledge home and put it into practice in a
way that leads to competition with the United States. Tere is nothing inherently
27 Center for American Progress | Immigration for Innovation
wrong with that. Indeed, it is in our interest that some individuals who train in
the United States and are exposed to our countrys values eventually return home
to share that understanding. But it contravenes our national interest to explicitly
permit a practice that trains foreign workers to replace U.S. workers.
Congress should adopt the following restrictions to ensure that the H-1B program
promotes the goal of enhancing U.S. competitiveness:
r
Prohibit the use of visas by stamng companies. Companies hling an H-1B
petition should be required to auest that the H-1B worker will be supervised
and controlled by the H-1B employer, thus preventing so-called job shops or
body shops from participating in the H-1B program.
r
Bar companies with more than 50 employees whose workforce is comprised of
more than 50 percent foreign workers from the H-1B program unless they can
establish to the satisfaction of the Department of Labor that they pay all of their
employees more than 125 percent of the prevailing wage and can establish a
recruitment program for U.S. workers that exceeds industry standards.
r
Prevent temporary work visas, such as H-1B visas and L-1 visas, from being made
available to foreign nationals who will use those visas to shadow U.S. workers in
order to allow the jobs performed by those U.S. workers to be moved onshore.
28 Center for American Progress | Immigration for Innovation
Conclusion
Talented immigrants have made crucial contributions to the development of next
generation technologies and have founded some of the most innovative busi-
nesses in the United States. Tey have created thousands of American jobs, fueled
productivity, and driven economic expansion. And as global economic integration
deepens, sustainable growth will depend in part on our continued ability to auract
the best and brightest innovators and entrepreneurs.
Simply put, enhanced labor mobility is a 21st century reality and ultimately an
economic imperative. But as the global talent pool expands and becomes more
nuid, it also creates instability in some sectors of our homegrown labor force.
Our policymakers must endeavor to minimize those enects and prevent employ-
ers from piuing the interests of immigrant and native workers against each other.
At the same time, as our economic future depends ever more on leveraging the
knowledge, skills, and creativity of our people, we must ensure that we are not
ignoring the important source of skilled, creative, and knowledgeable people
represented by our immigrants.
As the nation emerges from the shadows of this great recession, we must embrace a
progressive growth strategy that enhances our global competitiveness. Te reforms
to our high-skilled immigration policies outlined in this paper will help promote the
nations dual interest in growing the economy and protecting workers.
29 Center for American Progress | Immigration for Innovation
About the author
Marshall Fitz is Director of Immigration Policy at the Center for American
Progress, where he directs the Centers research and analysis of economic, politi-
cal, legal, and social impacts of immigration policy in America and develops policy
recommendations designed to further Americas economic and security interests.
Acknowledgements
Te author extends his sincere thanks to Mayu Takeda, a stellar Center for
American Progress intern, for her valuable research contributions.
Members of our taskforce on science and competitiveness provided constructive
criticism, feedback, and ideas indispensable to this series. In particular, James
Turner, Neal Lane, Brian Kahin, Arti K. Rai, Rachel Levinson, Daniel Sarewitz,
John Alic, and Chris Hill provided critical feedback. Finally, this series would also
not have been possible without important and substantive contributions from
Sarah Wartell, Michael Eulinger, Jitinder Kohli, Kate Gordon, and Reece Rushing.
30 Center for American Progress | Immigration for Innovation
Endnotes
1 Tom Kalil and John Irons, A National Innovation Agenda: Progres-
sive Policies for Economic Growth and Opportunity Through Science
and Technology (Washington: Center for American Progress, 2007),
available at http://www.americanprogress.org/issues/2007/11/pdf/
innovation_chapter.pdf.
2 Jonathan Sallet, Ed Paisley, and Justin Masterman, The Geography
of Innovation: The Federal Government and the Growth of Regional
Innovation Clusters (Washington: Science Progress, 2009), available
at http://www.scienceprogress.org/wp-content/uploads/2009/09/
eda_paper.pdf.
3 Louis Soares, Working Learners, (Washington: Center for American
Progress, 2009), available at http://www.americanprogress.org/
issues/2009/06/working_learners.html; Louis Caldera, Educational
Tools for the 21st Century, Center for American Progress, July 28,
2009, available at http://www.americanprogress.org/issues/2009/07/
educational_tools_memo.html.
4 65 percent of Computer Science PhDs, 57 percent of mathematics
PhDs, 58 percent of physics PhDs, 68 percent of engineering PhDs
and 32 percent of biological sciences PhDs from U.S. universities are
foreign born, see http://www.nsf.gov/statistics/infbrief/nsf08301/.
5 Immigrants founded 1 in 4 of the publicly traded companies that
were started from 1990-2005; Immigrant founded publicly traded
US venture-backed companies generated more than $130 billion
and employed 220,000 U.S. workers; Prominent companies: Intel,
Solectron, Sun, eBay, Inc, Yahoo, Google; Foreign nationals in U.S.
were inventors or co-inventors of 25 percent of all patents led in
U.S. in 2006, see http://www.sandhill.com/grax/content/NVCA.pdf,
pg. 32.
6 United States Senate Committee on the Judiciary Subcommittee
on Immigration, Refugees and Border Security, Statement of Brad
Smith, General Counsel and Senior Vice President, Legal and Corpo-
rate Aairs Microsoft Corporation, from the Hearing: The Economic
Imperative for Immigration Reform High-Skilled Immigration as
a Driver of Economic Growth, July 26, 2011, available at http://judi-
ciary.senate.gov/pdf/11-7-26%20Smith%20Testimony.pdf.
7 Theo S. Eicher, The Microsoft Economic Impact Study, March 2010,
available at http://richardsdavis.typepad.com/les/ms-impact_pub-
lic.pdf.
8 See http://www.techpolicyinstitute.org/les/the%20budgetary%20
eects%20of%20high-skilled%20immigration%20reform.pdf. In the
absence of green card and H-1B constraints, roughly 182,000 foreign
graduates of U.S. colleges and universities in STEM elds would likely
have remained in the United States over the period 2003-2007. They
would have earned roughly $13.6 billion in 2008, raised the GDP by
that amount, and would have contributed $2.7 to $3.6 billion to the
federal treasury.
In the absence of green card constraints, approximately 300,000
H-1B visa-holders whose temporary work authorizations expired
during 2003-2007 would likely have been in the United States labor
force in 2008. These workers would have earned roughly $23 billion
in 2008, raised the gross domestic product by that amount, and
would have contributed $4.5 to $6.2 billion to the federal treasury.
Similar results are obtained when analyzing legislation considered
by Congress during the last few years. For example, under reason-
able assumptions, the relaxation of green card constraints proposed
in the Comprehensive Immigration Reform Act of 2006 could have
increased labor earnings and GDP by approximately $34 billion in
the 10th year following enactment and had a net positive eect on
the budget of $34 to $47 billion over 10 years.
Relaxation of H-1B caps under the Comprehensive Immigration
Reform Act of 2007 could have increased labor earnings and GDP by
$60 billion in the tenth year following enactment and improved the
federal budgets bottom line by $64 to $86 billion over 10 years.

9 Stephen Fleming Discusses Immigration and Competitiveness at a
U.S. Chamber of Commerce Forum, Georgia Tech website, available
at http://www.gatech.edu/newsroom/release.html?nid=70418.
10 U.S Citizenship and Immigration Services, H-1B Benet Fraud &
Compliance Assessment, (2008), available at http://www.uscis.gov/
les/nativedocuments/H-1B_BFCA_20sep08.pdf ; Patrick Thibodeau,
Grassley Seeks Proof of Jobs from H-1B Applicants, Computer
World, September 29, 2009, available at http://www.computerworld.
com/s/article/9138674/Grassley_seeks_proof_of_jobs_from_H_1B_
applicants_?taxonomyId=60; Senator Chuck Grassley of Iowa,
Grassley Works to Ensure Accountability in H 1-B Visa Program,
Ocial statement, September 29, 2009, available at http://grassley.
senate.gov/news/Article.cfm?customel_dataPageID_1502=23410.
11 Debra Schi, Think Tank, House Eye H-1B Abuses, EE Times, Janu-
ary 2, 2006, available at http://www.eetimes.com/showArticle.
jhtml?articleID=175800119; Kevin Fogarty, Department of Labor
Orders Globaltek to Pay Back Wages for H-1B Violations, eWeek,
October 27, 2008, available at http://www.eweek.com/c/a/IT-
Infrastructure/Department-of-Labor-Orders-GlobalTek-to-Pay-Back-
Wages-for-H1B-Violations/.
12 These statistics, most recently reported for the academic year
ending in 2007, show that foreign students made up: 57 percent
of doctorals, 39 percent of masters, and 40 percent of all graduate
degrees (combining the doctoral and masters numbers), see http://
nces.ed.gov/pubs2009/2009020.pdf (tables 288 and 291); Arlene
Holen, The Budgetary Eects of High-Skilled Immigration Reform,
Technology Policy Institute, March 2009, available at http://www.
techpolicyinstitute.org/les/the%20budgetary%20eects%20of%20
high-skilled%20immigration%20reform.pdf, p. 28.
13 Ingrid K. Brey and William B. Schiller, Employment-Based Immigra-
tion: The First Three Preferences, American Immigration Lawyers
Association, reprinted from Navigating the Fundamentals of Immigra-
tion Law 89 (2009), available at http://www.aila.org/Content/default.
aspx?docid=29972.
14 U.S. Department of State, Nonimmigrant Visas Issued by Classica-
tion, Fiscal Years 2006-2010, available at http://www.travel.state.
gov/pdf/FY10AnnualReport-TableXVI_B.pdf.
15 US DHS, Oce of Immigration Statistics, U.S. Legal Permanent Resi-
dents: 2010, March 2011, available at http://www.dhs.gov/xlibrary/
assets/statistics/publications/lpr_fr_2010.pdf.
16 Including H1B, H1B1, H1C, L1, O1, and I Visas classes. Nonimmi-
grant Admissions by Class of Admission, Fiscal Years 1999 to 2008,
available at Nonimmigrant Visas Issued by Classication, Fiscal
Years 2006-2010, available at http://www.travel.state.gov/pdf/
FY10AnnualReport-TableXVI_B.pdf.
17 Congress authorizes 140,000 employment-based visas annually.
Approximately 86 percent of those visas go to individuals who could
be in high-skilled jobs minus 10,000 that are set aside for low-skilled
immigrants. That gure includes dependents, however, which aver-
age more than 1 per high-skilled immigrant. So the total number
of sponsored high-skilled workers receiving permanent visas was
around 56,000.
18 8 U.S.C. Sections 101 (a)(15)(H), (L), (O), and (J)
19 John Hennessy, Bloomberg Innovation and Econom Roundtable.
Video available at http://www.bloomberg.com/video/77316400/.
20 EU passes legislation establishing blue card, available at http://
www.diyexpat.com/news/bluecardpassed.html; Canadian govern-
ment eorts to greatly cut waiting times for high-skilled workers,
available at http://www.prlog.org/10066101-canada-continues-
aggression-to-attract-skilled-migrants.html.
21 Council of Graduate Schools, Findings from the 2011 CGS Interna-
tional Graduate Admissions Survey (2011), available at www.cgsnet.
org/portals/0/pdf/R_IntlAdm11_II.pdf.
31 Center for American Progress | Immigration for Innovation
22 Council of Graduate Schools, Findings from the 2009 CGS Interna-
tional Graduate Admissions Survey 2009, available at http://www.
cgsnet.org/portals/0/pdf/R_IntlAdm09_II.pdf.
23 UC Berkeley School of Information, Americas New Immigrant
Entrepreneurs, (2007), available at http://sites.kauman.org/pdf/
entrep_immigrants_1_61207.pdf, p.19.
24 U.S Citizenship and Immigration Services, H-1B Benet Fraud &
Compliance Assessment,p. 13-15. See also, Government Account-
ability Oce, H-1B Visa Program: Reforms Are Needed to Minimize
the Risks and Costs of Current Program (2011), available at http://
www.gao.gov/products/GAO-11-26.
25 National Foundation for American Policy, Analysis: GAO report nds
H-1B Professionals are Paid Comparable to Similar U.S. Profession-
als, Important to Large and Startup Companies, January 2011, p.8,
available at http://www.nfap.com/pdf/H1BVisasandtheGAOReport-
NFAPPolicyBrief-January2011.pdf.
According to the NFAP, the GAO inaccurately cites that the USCIS
report found 21 percent fraud in the H-1B program.The report
alleged 13.4 percent fraud and 7.3 percent technical violations
among the employers examined, but the baseline analysis does not
take into account or provide the process available in practice for
employers to defend themselves against the allegations. NFAP thus
concludes that both the fraud and technical violations gures may
not be completely representative.
26 Ibid.
27 Moira Herbst, Visa Fraud Sparks Arrests Nationwide, BusinessWeek,
February 13, 2009, available at http://www.businessweek.com/
bwdaily/dnash/content/feb2009/db20090212_920784.htm.
28 Ibid.
29 Patrick Thibodeau, Troubled H-1B fraud case ends quietly, Com-
puterworld, May 16, 2011, available at http://www.computerworld.
com/s/article/9216694/Troubled_H_1B_fraud_case_ends_quietly_.
30 American Federation of Teachers, Importing Educators: Causes and
Consequences of International Teacher Recruitment (2009).
31 Steven Callegan, Large-Scale Visa Fraud Alleged at Infosys,
February 25, 2011, available at http://www.courthousenews.
com/2011/02/25/34452.htm.
32 U.S Citizenship and Immigration Services, H-1B Benet Fraud &
Compliance Assessment.
33 Patrick Thibodeau, H-1B Visa Program Under Increased DHS
Scrutiny (CIO, May 7, 2009), available at http://www.cio.com/
article/492001/H_1B_Visa_Program_Under_Increased_DHS_Scru-
tiny.
34 Donald Neufeld, H-1B Visas: Designing a Program to Meet the
Needs of the U.S. Economy and U.S. Workers,Testimony before the
House Committee on the Judiciary, Subcommittee on Immigra-
tion Policy and Enforcement, March 31, 2011, available at http://
www.uscis.gov/USCIS/Resources/Congress/Testimonies/2011/
testimony_2011331_H-1B_Neufeld.pdf.
35 Senate Judiciary Committee, Subcommittee on Immigration, Refu-
gees and Border Security, The Economic Imperative for Enacting
Immigration Reform, July 26, 2011, statements available at http://
judiciary.senate.gov/hearings/hearing.cfm?id=3d9031b47812de259
2c3baeba62beeb0.
36 Alan B. Krueger, Two Labor Economic Issues of Immigration
Reform (Washington: Center for American Progress, April 4, 2006),
p. 1-3, available at http://www.americanprogress.org/kf/krueger_im-
migration.pdf.
37 Alan B. Krueger, Two Labor Economic Issues of Immigration
Reform (Washington: Center for American Progress, 2006), available
at http://www.americanprogress.org/kf/krueger_immigration.pdf, p.
1-3.
38 See Ray Marshall, Immigration for Shared Prosperity, A Framework
for Comprehensive Reform, (2009) p. 43.
39 DHS, USCIS, H-1B Fiscal Year (FY) 2012 Cap Season, October 31,
2011, available at http://www.uscis.gov/portal/site/uscis/menuite-
m.5af9bb95919f35e66f614176543f6d1a/?vgnextoid=4b7cdd1d5fd
37210VgnVCM100000082ca60aRCRD&vgnextchannel=7356681126
4a3210VgnVCM100000b92ca60aRCRD. See also INA Sections 214(g)
(1)(A), 214(g)(5)(C).
40 The ling period opens on April 1, 6 months before the authorized
start date. New annual visa numbers actually become available on
October 1, the rst day of the federal governments scal year.
41 A limited administrative x to this problem has been established
through an extension to the optional practical training program, but
it is not a long-term solution to the problem. http://www.uscis.gov/
portal/site/uscis/menuitem.5af9bb95919f35e66f614176543f6d1a/?v
gnextoid=9a3d3dd87aa19110VgnVCM1000004718190aRCRD&vgne
xtchannel=68439c7755cb9010VgnVCM10000045f3d6a1RCRD
42 See Norman Plotkin, Time to Plan for the H-1B Visa Filing Deadline,
Clean Tech Group, March 16, 2009, available at http://cleantech.com/
news/4270/time-plan-h-1b-visa-ling-deadline.
43 See Eilene Zimmerman, H-1B Visa Crunch: I Cant Grow My Busi-
ness, Fortune Small Business, April 18, 2008, available at http://
money.cnn.com/2008/04/16/smbusiness/immigrant_visa_tech.fsb/
index.htm.
44 DHS, USCIS, USCIS Reaches FY 2010 H-1B Cap, December 22, 2009,
available at http://www.uscis.gov/portal/site/uscis/menuitem.
5af9bb95919f35e66f614176543f6d1a/?vgnextoid=153a1638367b52
10VgnVCM100000082ca60aRCRD&vgnextchannel=68439c7755cb9
010VgnVCM10000045f3d6a1RCRD.
45 DHS, USCIS, USCIS Reaches FY 2011 H-1B Cap, March 29, 2011,
available at http://www.uscis.gov/portal/site/uscis/menuitem.
5af9bb95919f35e66f614176543f6d1a/?vgnextoid=7fd9b9138c9
cd210VgnVCM100000082ca60aRCRD&vgnextchannel=68439c77
55cb9010VgnVCM10000045f3d6a1RCRD Miriam Jordan, Slump
Sinks Visa Program, The Wall Street Journal, October 30, 2009,
available at http://online.wsj.com/article/SB125677268735914549.
html?mod=WSJ_hpp_MIDDLETopStories.
46 MyVisaJobs, Top 1000 H1B Visa and Green Card Sponsors, 2000-
2009, available at http://www.myvisajobs.com/Top_Visa_Sponsors.
aspx.
47 A variant of this market based mechanism was contained in the SKIL
Act bill, S. 1083, that was introduced in the Senate in 2007: http://
thomas.loc.gov/cgi-bin/query/D?c110:1:./temp/~mdbs9WxoN0:: The
SKIL Act bill, however, only provided for market-based increases in
the annual number, not decreases. It also did not create a statutory
ceiling.
48 US Department of State, Employment-Based Immigrant Visas, avail-
able at http://travel.state.gov/visa/immigrants/types/types_1323.
html3.
49 U.S. Department of State, Visa Bulletin, November 2011, available
at http://travel.state.gov/visa/bulletin/bulletin_5572.html.
50 Ibid.
51 Emily Bazar, Opportunity Fuels Skilled Immigrants Exodus, USA
Today, September 21, 2009, available at http://www.usatoday.com/
news/nation/2009-09-20-brain-drain-home_N.htm; Emily Bazar,
More of the Worlds Talented Workers Opt to Leave USA, USA Today,
September 21, 2009, available at http://www.usatoday.com/news/
nation/2009-09-20-brain-drain_N.htm; Vivek Wadhwa, Is the U.S.
Experiencing its First Brain Drain? March 31, 2009, available at
http://www.soc.duke.edu/GlobalEngineering/pdfs/media/losingth-
eworlds/nam_usexperiencing.pdf;
52 Stuart Anderson, Keeping Talent In America, (Washington: National
Foundation for American Policy, October 2011), available at http://
www.nfap.com/pdf/KEEPING_TALENT_IN_AMERICA_NFAP_Octo-
ber_2011.pdf.
32 Center for American Progress | Immigration for Innovation
53 Ibid.
54 Jennifer Hunt and Marjolaine Gauthier-Loiselle, How Much
Does Immigration Boost Innovation? American Economic Journal:
Marcroeconomics 2 (2) (2010): 31-56, available at http://ftp.iza.org/
dp3921.pdf. See also, Vivek Wadhwa et Al, Americas New Immigrant
Entrepreneurs( Kansas City: Kauman Foundation, 2007), available
at http://people.ischool.berkeley.edu/~anno/Papers/Americas_
new_immigrant_entrepreneurs_I.pdf.
55 John Kerry, Richard Lugar, and Mark Udall, S. 565: StartUp Visa Act
of 2011, 112th Congress, U.S. Senate, March 14, 2011, available at
http://www.govtrack.us/congress/billtext.xpd?bill=s112-565.
56 Only 5,000 permanent residence visas are available annually for
low-skilled workers and that number includes any dependents. This
category is so small that it is eectively useless as a business option.
57 Note that while some commentators have claimed that it is com-
mon practice for companies to use the L-1 category to circumvent
the H-1B caps, a recent report by the Inspector General found no
substantiation for the claim. See Department of Homeland Security,
Review of Vulnerabilities and Potential Abuses of the L-1 Visa Pro-
gram, January 2006, available at http://www.dhs.gov/xoig/assets/
katovrsght/OIG_06-22_Jan06.pdf, p. 10.
58 Patrick Brethour, Canada: A UN of Tech Talent, The Globe and Mail,
available at http://www.theglobeandmail.com/news/technology/
article796346.ece.
59 Michael Mandel, The Real Cost of Oshoring, BusinessWeek, June
18, 2007, available at http://www.businessweek.com/magazine/con-
tent/07_25/b4039001.htm;Some of the arguments Business week
make can be found in a study by Susan Houseman from W.E. Upjohn
Institute for Employment Research entitled Outsourcing, Oshoring,
and Productivity Measurement in U.S. Manufacturing, which can
be found in the International Labour Review (Vol. 146 (2007), No.
1-2)I attached a PDF of the report for your review. However, others
are made independently by BusinessWeek itself.
60 Marianne Kolbasuk McGee and Chris Murphy, Do Indian Out-
sources Misuse the H1-B Visa Program? Information Week, May 19,
2007, available at http://www.informationweek.com/news/global-
cio/outsourcing/showArticle.jhtml?articleID=199602025.
61 Ron Hira, Hoq Guestworkers Promote Outsources, The American
Prospect, August 5, 2007, available at http://www.prospect.org/cs/
articles?article=how_guestworkers_promote_outsourcing.
62 Ron Hira, ITs Time To Overhaul H1-B Visas, Business Week, April
2, 2009, available at http://www.businessweek.com/magazine/
content/09_15/b4126063331942.htm. This is an article by the San
Francisco Chronicle from 2006 on Bank of Americas practice of
forcing employees to train their replacements as a condition of their
severance pay, the article goes on to say that other companies have
similar practices but does not provide a list. http://www.sfgate.
com/cgibin/article.cgi?le=/chronicle/archive/2006/06/09/BUGPJ-
JA66348.DTL This is a general article on the subject from USA Today
(2004), it does not name any companies. http://www.usatoday.com/
money/workplace/2004-04-06-replace_x.htm
63 In addition to these job shops, other problems with recruitment
of high-skilled workers have been identied. A 2009 report by the
American Federation of Teachers, for example, described foreign
teachers being placed at public schools without actually being pub-
lic employees. These teachers were not only paid drastically below
the prevailing wage and were without the safety nets aorded to
most teachers, but they also could not be clearly held accountable
for their actions. Even when these teachers were unionized and
wage protected, the recruiters often exacted unscrupulously high
premiums from the foreign workers in order to be placed. American
Federation of Teachers, Importing Educators: Causes and Conse-
quences of International Teacher Recruitment (2009).
64 Soares, Working Learners.
65 Scott Lilly, Pumping Life Back into the U.S. Economy
(Washington:Center for American Progress, 2009), available at http://
www.americanprogress.org/issues/2009/01/pdf/lilly_stimulus.pdf.
66 Robert Pollin, James Heintz, and Heidi Garrett-Peltier, The Eco-
nomic Benets of Investing in Clean Energy (Washington: Center
for American Progress, 2009), available at http://www.american-
progress.org/issues/2009/06/clean_energy.html.
67 Linda Levine, CRS Report for Congress, Congressional Research
Service, January 23, 2007, available at http://www.ipmall.info/
hosted_resources/crs/RL31973-070123.pdf.
68 Of course, industry standards is an amorphous concept that must
be dened. The denition must be exible enough to recognize
dierent recruiting standards and practices for dierent sized com-
panies in dierent industries.
69 Linda Levine, CRS Report for Congress, Congressional Research
Service, January 23, 2007, available at http://www.ipmall.info/
hosted_resources/crs/RL31973-070123.pdf.
70 Indian outsourcing companies or job shops such as Infosys and
Wipro rotate about 1,000 workers to and from the United States
annually. The two largest receivers of H-1B visas, together they were
granted almost 9,000 H-1B visas in 2006. Although there is anecdotal
evidence of visa holders being paid less than the U.S. market rates,
there is no evidence of pervasive wage depression and abuse. Info-
sys and Wipro argue that their practices still spur U.S. innovation and
jobs by providing foreign talent, which U.S. consumers benet from
better customer service, and that cracking down on Indian outsourc-
ing companies would be futile as U.S. outsourcing companies could
easily engage in similar practices.
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About the Center for American Progress
The Center for American Progress is a nonpartisan research and educational institute dedicated
to promoting a strong, just and free America that ensures opportunity for all. We believe that
Americans are bound together by a common commitment to these values and we aspire to ensure
that our national policies reect these values. We work to nd progressive and pragmatic solutions
to signicant domestic and international problems and develop policy proposals that foster a
government that is of the people, by the people, and for the people.
About Doing What Works
CAPs Doing What Works project promotes government
reform to eciently allocate scarce resources and achieve
greater results for the American people. This project
specically has three key objectives:
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and tax expenditures, focused on priority areas such as
health care, energy, and education
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management and strengthening operations in the areas of
human resources, information technology, and procurement
t#VJMEJOHBGPVOEBUJPOGPSTNBSUFSEFDJTJPONBLJOHCZ
enhancing transparency and performance
measurement and evaluation
About Science Progress
Science Progress, a project of the Center for American
Progress, is designed to improve public understanding
of science and technology and to showcase exciting,
progressive ideas about the many ways in which
government and citizens can leverage innovation for the
common good. Since its inception in the fall of 2007, Science
Progress has helped shape the conversation about our
countrys investment in science.
Universities in
Innovation Networks
The Role and Future Promise of University Research
in U.S. Science and Economic Policymaking
Krisztina Z Holly January 2012
WWW. AMERI CANPROGRESS. ORG
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The fourth report in a series on U.S. science and economic competitiveness from the
Doing What Works and Science Progress projects at the Center for American Progress
About this series on U.S. science
and economic competitiveness
Te U.S. Congress in late 2010 asked the Department of Commerce to complete two studies as part
of the reauthorization of the America COMPETES Act. Te hrst, which was released on January 6th,
2012, at the Center for American Progress, focuses on U.S. competitiveness and innovation. Te sec-
ond, due to Congress in early 2013, oners specihc recommendations for developing a 10-year national
innovation and competitiveness strategy.
We applaud the commissioning of these reports but believe we cannot anord to wait that long to take
action. Tats why we convened in the spring of 2011 the group of experts listed on the following page.
We spent two days in wide-ranging discussion about the competitive strengths and weaknesses of our
nations scientihc endeavors and our economy, before seuling upon the topics that constitute the series
of reports we publish here. Each paper in the series looks at a dinerent pillar supporting U.S. science
and economic competitiveness in a globally competitive economy:
r
Rewiring the Federal Government for
Competitiveness
r
Economic Intelligence
r
Universities in Innovation Networks
r
Manufacturers in Innovation Networks
r
Building a Technically Skilled Workforce
r
Immigration for Innovation
Te end result, we believe, is a set of recommendations that the Obama administration and Congress
can adopt to help the United States retain its economic and innovation leadership and ensure that all
Americans have the opportunity to prosper and nourish now and well into the 21st century.
Many of our recommendations are sure to spark deep resistance in Washington, not least our proposal
to reform a number of federal agencies so that our government works more enectively and emciently in
the service of greater U.S. economic competiveness and innovation. Tis and other proposals are sure
to meet resistance on Capitol Hill, where dinerent congressional commiuees hold sway over diner-
ent federal agencies and their policy mandates. Tats why we open each of our reports with this one
overarching recommendation: Congress and President Obama should appoint a special commission to
recommend reforms that are packaged together for a single up-or-down vote in Congress. In this way,
thorough-going reform is assured.
Tis new commission may not adopt some of the proposals put forth in this series on science and
economic competitiveness. But we look forward to sharing our vision with policymakers as well as the
American people. President Obama gets it right when he says, To win the future, we will have to out-
innovate, out-educate, and out-build our competitor nations. We need to start now.
Coordinating editors for the series on U.S. science and economic competitiveness
Ed Paisley, Vice President, Editorial, American Progress
Gadi Dechter, Associate Director, Government Reform, Doing What Works
Sean Pool, Assistant Editor, Science Progress
American Progress taskforce on U.S. science and economic competitiveness
John Alic, science, technology, and economic policy
consultant and former stan member of the Congressional
Omce of Technology.
Joseph Bartlett, of counsel in Sullivan & Worcesters
corporate department and former undersecretary of
commerce at the U.S. Department of Commerce.
Maryann Feldman, S.K. Heninger distinguished chair in
public policy at the University of North Carolina, Chapel Hill.
Kate Gordon, VP for Energy Policy at the Center for
American Progress.
Michael Gurau, president, Clear Innovation Partners, a
venture capital investment hrm.
David Hart, director of the Center for Science and
Technology Policy at George Mason University School
of Public Policy.
Christopher Hill, professor of public policy and technol-
ogy at George Mason University School of Public Policy
and former vice provost for research at George Mason.
Neal Lane, senior fellow for science and technology
policy at Rice University and former advisor to the
president on science and technology policy.
Rachel Levinson, director of National Research Initiatives
at Arizona State University and former assistant director
for life sciences at the White House Omce of Science and
Technology Policy.
Jonathan Moreno, Editor-In-Chief of Science Progress
and Senior Fellow at the Center for American Progress.
Arti Rai, Elvin R. Lauy Professor of Law at Duke
University and former Administrator for External
Anairs, USPTO.
Andrew Reamer, research professor at the George
Washington University Institute of Public Policy and
non-resident senior fellow at the Brookings Institution.
RoseAnn B. Rosenthal, president and CEO, Ben
Franklin Technology Partners of Southeastern
Pennsylvania.
Jonathan Sallet, partner in the law hrm of OMelveny
& Myers LLP, Science Progress advisor, and former
director of the Omce of Policy and Strategic Planning
of the U.S. Department of Commerce.
Daniel Sarewiz, director of the Consortium for
Science, Policy, and Outcomes at Arizona State
University.
James Turner, Senior Counsel for Innovation &
Technology, and Director of Energy programs at the
Association of Public and Land-Grant Universities
and former professional stan and chief counsel for the
House Commiuee on Science and Technology.
William A. Wulf, professor of computer science at the
University of Virginia and former president of the
National Academy of Engineering.
Universities in
Innovation Networks
The Role and Future Promise of University Research
in U.S. Science and Economic Policymaking
Krisztina Z Holly January 2012
Contents 1 Introduction and summary
4 Current state of U.S. investment in innovation
6 Stoking the engine of innovation
6 Shifting investments and the role of universities in research
7 Changing views about the nature and impact of research
8 The importance of transformative research
10 Supporting the next generation of research faculty
10 Policy recommendations
12 Supporting the translation of knowledge
12 The economic impact of university spin-out companies
13 Technology transfer officesunder-resourced but critical partners
14 The innovation gap
15 Existing federal programs of potential benefit
16 Policy recommendations
19 Seeding innovation ecosystems
19 The case for innovation ecosystems
21 IMPACT
22 Policy recommendations
24 Measuring for success
25 Technology transfer metrics
25 Looking beyond traditional technology transfer metrics
27 Measuring sustainability through talent and linkages
28 Creating the measurement infrastructure
30 Policy recommendations
Contents
32 Preparing for shifts in competitiveness
34 Policy issues to consider
36 Conclusion
37 About the author and acknowledgements
39 References
42 Endnotes
1 Center for American Progress | Universities and Innovation Networks
Te United States is known for its innovativeness and entrepreneurial spirit.
Between half and three-quarters, or even more, of all economic growth in the last
half-century can be tied to technological innovation, depending on which study
you use.
1
Yet in the last few decades, measures increasingly demonstrate that the
United States is falling perilously behind in innovation.
When we think of technological innovation, we think of inventors, entrepreneurs,
and corporations joining novel ideas with hnancial capital and market
opportunities. Enorts to increase innovation should help support circumstances
for the private sector to bring new products and services to market. Te spark
of technological innovation, however, onen begins well before the opportunity
is obvious or auractive to private sector. As a result, the partnership between
the U.S. governments funding of research in the nations public and private
universities plays a larger role than most observers recognize.
Universities play a vital and extensive role in driving innovation in the United
States. Tey oner a vast research base (a total of $50 billion nationwide), the
ability to teach and develop a fresh new workforce (3 million graduates each year),
goodwill of successful alumni, the ability to convene disparate expertise, and a
deep commitment to local communities. Universities have been important players
to date, and we have an opportunity to further nurture these vibrant ecologies to
sustainably generate greater innovation and economic growth.
In the context of the declining state of innovation in the United States, we have an
opportunity to tap into universities in a variety of ways, among them:
r
Stoking the engine of innovation-supporting university research, the
foundation for the most groundbreaking innovations and innovators that can
create new industries
Introduction and summary
2 Center for American Progress | Universities and Innovation Networks
r
Supporting the flow and application of knowledge-bringing industry
expertise to academia and reducing scientihc risk to enable early discoveries to
advance to the stage where the private sector is willing to invest and capitalize on
them
r
Seeding innovation ecosystems-creating the culture, human capital, and
connections necessary to form innovation networks where researchers,
entrepreneurs, investors, manufacturers, and other research interests can
collaborate and compete
r
Measuring for success-developing the right framework and infrastructure for
measuring innovation to guide policymaking and investments
r
Preparing for shifts in competitiveness-rethinking assumptions and trying
new approaches so that policy can drive new frontiers of innovation
Increasing globalization, connectivity, access, and acceleration of technology only
make the need to invest in innovation all the more urgent. And ultimately, we
must realize that the landscape is shining, and what works yesterday may not be
as enective today, nor be the best approach in the future. Te United States and its
universities should not only accelerate its investments in research and innovation
but also continually reevaluate and redesign the traditional mechanisms for doing
so to prepare for the changing face of innovation long term.
In the pages that follow, we examine all hve of these ways to stoke innovation
through and around universities, relying on public- and private-sector support
and collaboration. We include specihc policy recommendations at the end of each
chapter of this report, but here is a brief synopsis of our main recommendations:
r
Increase investments in early-stage research, targeting part of these investments
toward high-risk, large-scale, transformational projects, with an emphasis on the
development of talent
r
Bridge the gap between early-stage research and the marketplace through
policies that support technology transfer, programs that increase knowledge
now between academia and industry, and partnerships that support translational
research and proof-of-concept projects
3 Center for American Progress | Universities and Innovation Networks
r
Refocus federal economic development funding on regional and local ecosystems
that develop talent and create links between researchers and the private sector
r
Develop new, more comprehensive methodologies to measure the linkages
between investments in innovation and the broader impacts in human capital, new
products, and jobs to drive beuer policy decisions and incentives for innovation
r
Develop radical policy experiments and incentives to enable universities to
be at the forefront of trends in innovation and competitiveness as the future
mechanisms of innovation change
Tis paper will demonstrate that these recommendations are dehnitively
appropriate for our nation to pursue in order to boost the global strength and
competitiveness of our science and our economy.
4 Center for American Progress | Universities and Innovation Networks
Current state of U.S.
investment in innovation


Despite Americas long-held reputation of innovativeness, it ranked only sixth in a
recent study of innovation capacity. More alarmingly, the United States ranked last
of 40 countries in terms of improving this capacity over the last decade.
2
We have
fallen behind, and our rapid slide is only accelerating.
Aner a long history of the United States at the top, how could this be? In 2005, the
National Academies Gathering Storm commiuee concluded that the primary
driver of the future economy will result from advances in science and engineering.
Yet federal government funding of R&D has declined by 60 percent as a percentage
of gross domestic product (the largest measure of our economy) over the last
40 years.
3
Meanwhile, other countries such as China and South Korea have
approximately doubled their investments in the last two decades.
4
To put this in
perspective, the total annual federal investment in research in mathematics, science,
and engineering is equal to the increase in U.S. health care costs every nine weeks.
5
Our human capital investment lags as well. Te United States ranks 27th
among developed nations as measured by the percentage of undergraduates
completing science and engineering degrees.
6
And according to a National
Science Foundation study on earned doctorates, nationally more than two-thirds
of engineering Ph.Ds are now granted to foreign nationals.
7
Although this report
focuses on hnancial capital investments in the innovation ecosystem, investing in
university research is tightly intertwined with developing the talent that drives our
countrys research and development.
Jobs continue their exodus overseas, guuing Americas economic vibrancy and
innovative capabilities. Over the past decade in the United States, 42,000 factories
closed and 6 million manufacturing jobs were lost.
8
Tese are no longer purely
low-wage jobs, either; hrms such as General Electric Co. now locate the majority
of research and development jobs outside the United States.
9
Similarly, innovative
enorts are no longer limited to companies based in our country; in 2009, the
majority of U.S. patents were hled by non-U.S. companies.
10
5 Center for American Progress | Universities and Innovation Networks
Te imbalance of investment in innovation began decades ago, but is becoming
evident in our economy now. Take China, for example. Compared with its trade
surplus of $196 billion in 2009, the United States had a trade dehcit of $379
billion.
11
According to a Georgia Tech study, China has now supplanted the United
Statess leadership role in technological standing and is the leading exporter of high
technology worldwide.
12
Five thousand of Wal-Marts 6,000 suppliers are in China.
13
If we do not reverse course, these trends will only accelerate as the past several
decades of shrinking investments in innovation manifest themselves. We have an
urgent crisis that can be addressed only if we renew our innovative capacity and
invest in the long term.
6 Center for American Progress | Universities and Innovation Networks
Stoking the engine of innovation


Te majority of all economic growth in the last half-century in the United
States can be tied to technological innovation, and other countries have been
accelerating their commitment to research and development. Meanwhile, the U.S.
investments in science and innovation have been slipping rapidly. Tere are four
key reasons why this is happening:
r
Shining investments and the role of universities in research
r
Changing views about the nature and impact of research
r
Te importance of transformative research
r
Supporting the next generation of research faculty
Lets consider each in turn.
Shifting investments and the role of universities in research
With shrinking federal investment in research, continual expansion of manufacturing
capabilities overseas, and domestic education in the so-called STEM disciplines
of science, technology, engineering, and mathematics rapidly falling behind other
countries, there is less and less to entice corporations to focus their research and
development enorts in the United States. Te R&D investments of U.S. companies
increased 2.6 times more overseas than domestically from 1997 to 2007.
14
Te
situation is only likely to worsen, as a third of the U.S. research workforce is reaching
retirement age in the next hve years, and half in the next decade.
Meanwhile, in addition to shining investments abroad, corporations are scaling
back overall research and development enorts, increasing the signihcance of
government funding. One study found that the 100 winning innovations-those
highlighted annually by the R&D Magazine-the R&D 100-are no longer being
developed by private industry to the extent they were almost 40 years ago.
15
Te
majority of these award-winning innovations now arise from early discoveries
supported through federal funding.
7 Center for American Progress | Universities and Innovation Networks
Corporations shy away from long-range R&D investments for many reasons,
including the lack of short-term hnancial returns, the uncertainty of outcomes and
the risk of knowledge spillover to their competition. As a result, corporations
tend to choose investing in less risky endeavors.
16
In comparison, universities are
not troubled by spillover enects, and in fact welcome them, because dissemination
of knowledge is part of the academic mission and incentive system.
Universities are among the few places (including federal laboratories) that conduct
the type of game-changing and disruptive research that is the foundation of many
of the most signihcant U.S. technological advancements today. A National Science
Board report found that more than 70 percent of so-called prior art references
on the front page of U.S. patents-prior art meaning anything predating the patent
application date that is similar to or the same as the described invention-pointed to
publications by researchers at universities and other public institutions rather than
the private sector.
17
Entire industries can be traced back to fundamental discoveries
at universities. And Silicon Valley, the poster child of economic development, could
not have sprung forth without federal investments in research.
Yet federal funding of research is precariously low. Current levels of funding
have dropped 60 percent as a percentage of GDP in the last 40 years, at a time
when the countrys competitiveness is at great risk.
18
Now more than ever, the
federal government must redouble its investments in research, which serves as the
foundation of innovation in this country.
Changing views about the nature and impact of research
Game-changing inventions and discoveries can take a long time to mature, with
the impacts apparent only decades aner their initial discovery. Today, for example,
the Internet is a household word and has created a groundbreaking shin in the
way we live, work, and play. But 30 years passed between the hrst Internet message
in 1969 and the Internet boom of the late 1990s. Similarly, it required a decade
from the hrst paper describing recombinant DNA to when biosynthetic human
insulin was hrst commercially available in 1982; since then rDNA has become the
fundamental principle upon which todays biotechnology industry is based.
Unfortunately, the majority of Americans, policymakers included, are today
unfamiliar with the process of research. Most people can understand an
endeavor where the outcome is planned, such as manufacturing a cell phone or
Universities are
among the few
places (including
federal laboratories)
that conduct
the type of
game-changing
and disruptive
research that is
the foundation
of many of the
most signicant
U.S. technological
advancements
today.
8 Center for American Progress | Universities and Innovation Networks
producing a hlm. It is much more dimcult to grasp the process of exploring the
unknown. But in much the same way that Roald Amundsen set his sights on the
South Pole without knowing what he would hnd there, the process of discovery
is not haphazard or random. Te process is deliberate, but the actual moment of
inspiration can be a surprise.
Discoveries are built on other discoveries, and regardless of whether the outcome
of a particular project has a direct commercial application, the knowledge
gained becomes a piece of the puzzle. Onen the unexpected outcomes, such as
Christopher Columbus landing in the West Indies, can be the most important
game changers. But because the result of each project is unknown at the outset
and one cannot predict those that will lead to commercial success, a portfolio
approach is required.
Te plan initiated by the George W. Bush administration and continued by
the Obama administration to double research funding at three key research
agencies-the National Science Foundation, the Department of Energys Omce
of Science, and the Department of Commerces National Institute of Standards
and Technology-in the next decade demonstrates a positive commitment to
bolstering American research and development. Yet Congress and the American
public must continue to see the importance of these investments, especially in
dimcult economic times. In particular, additional increases in extramural federal
research funding is essential to enable many of our nations new ideas and to foster
the next generation of innovators.
The importance of transformative research
In large part, this lag time between discoveries and products can put research
funding at risk. Faculty are spending increasingly more time on applying for
grants, rather than doing research. Te payline-the percentage of proposals that
are funded-for the National Institutes of Health is at its lowest level ever. Tis
phenomenon, along with the conservative nature of peer review, can limit risk-
taking by faculty, who hesitate to submit a proposal unless they are fairly certain
the results will support the hypothesis.
19
Research, however, should be risky and long-term-these transformative
endeavors are generally the ones that result in the biggest breakthroughs.
Transformative research is dehned by the American Association for the
9 Center for American Progress | Universities and Innovation Networks
Advancement of Science as research with the potential to generate deep changes
in concepts, to produce new tools or instrumentation that will allow the entire
community to extend its reach, to create a new subheld, or to bring together
dinerent helds to make discoveries that would otherwise be impossible.
20
When the research process is not well understood by policymakers, early stage
research grants can become smaller, and expectations become based on shorter-
term commercialization outcomes. Multiple agencies support small research
projects applied to narrow applications, while fundamental scientihc questions
are len unaddressed.
Te opposite trend is needed. Te federal government plays a crucial role in
supporting high-risk, high-reward research that is no longer supported by industry,
and we should not be afraid to make big bets on big ideas-even though the results
may not be apparent for a long time. In the past and present, a mixture of public
and private institutions such as the Department of Defenses Defense Advanced
Research Projects Agency alongside private-sector Bell Labs, Xeroxs Palo Alto
Research Center, and the Howard Hughes Medical Institute have created high-
impact innovations because of their focus on high-risk,high-reward research.
ARPA, which eventually transformed into DARPA, beginning in the 1960s would
award grants of $10 million or more in todays dollars into large collaborative
research programs to support investigators with bold ideas and led to decades of
economic growth. Many of the early university innovations from ARPA continued
into the private sector through industry laboratories such as PARC and Bell
Labs, and spurred entire industries. Most of the seminal algorithms for computer
graphics, for example, were developed at the University of Utah in the late 1960s,
with the leading minds going on to found companies such as Adobe, Pixar, Silicon
Graphics, Atari, Netscape, and others.
Although focused more on applied research now, DARPA continues a catalytic
level of investment today closely linked to the mission of defense agencies and
needs of the warhghter.
Te Department of Energys new Advanced Research Projects Agency-Energy is
doing similar work today. Authorized at $300 million in FY 2008, ARPA-E replicated
this model of focusing talent and teamwork on high-risk, high-reward projects. Early
indicators show success, and its essential for Congress to understand the high-value
impact programs like this can have, especially in years with less overall funding.
21

When the research
process is not well
understood by
policymakers, early
stage research
grants can
become smaller,
and expectations
become based
on shorter-term
commercialization
outcomes.
10 Center for American Progress | Universities and Innovation Networks
Supporting the next generation of research faculty
One of the additional values of federal investment in university research goes
beyond the creation of new knowledge or impact through discovery to the
creation of a whole new generation of researchers and innovators. U.S. universities
invest great resources into developing Ph.D.s, and federal funding plays a crucial
role. Case in point: 75 percent of life sciences Ph.D. students are supported by
either a research assistantship/traineeship or a fellowship/grant.
22
But the United
States is not able to capture their full value, for at least two reasons.
First, a full two-thirds of Ph.D. students are currently foreign nationals, who
face dimculties staying in this country aner their dissertation. Despite the
challenges around immigration reform, this is an obvious place where facilitating
immigration would have immediate beneht.
Also, the path from recently minted Ph.D. to productive academic career has
never been more dimcult. A 2008 study by the American Association for the
Advancement of Science determined that young faculty were increasingly
spending more of their time applying for grants, encountering more dimculty than
their more experienced colleagues, at the expense of spending time working to
advance their helds.
23
And data from the National Institutes of Health show that
the average age of hrst Research Project Grant (called an R01 grant) for Ph.D.s has
risen from 34.3 years in 1970 to 41.7 in 2004.
24
By creating such large hurdles for early career faculty, we are limiting the
enectiveness of the newest generation of innovators we invested so heavily to foster.
Extramural research funding invested into universities supports students and
their training, a critical piece for developing long-term competitiveness. Many
of the bright minds of the next generation are precisely the types of researchers
in whom the government should be investing, given the rapidly changing nature
of some scientihc helds.
Policy recommendations
Despite the tight hnancial times, the federal government should increase
investments in basic research because it is through developing the talent and ideas in
innovation and technology that we can create a sustainable base for our economy.
11 Center for American Progress | Universities and Innovation Networks
r
Carry out the plan supported by the Obama administration and the research
and business communities to double research funding at the National Science
Foundation, the Department of Energys Omce of Science, and the Department
of Commerces National Institute of Standards and Technology, and expand the
enort to continue increasing investments from the National Institutes of Health
and other agencies investing in basic research.
r
Reserve part of the federal research budget and target it for high-risk, game-
changing scientihc projects. Te National Academies report, Rising Above the
Gathering Storm, concludes that 9 percent of research should go to very long-
term funding.
25
Develop metrics to measure success across the projects with a
portfolio approach.
r
Invest in and empower program omcers to engage with the relevant professional
communities and make bold decisions to support transformative research that
might be seen at hrst by a peer review commiuee as too risky or unconventional.
Encourage university faculty to serve as rotating program omcers with
appropriate recognition from the university administration.
r
Fully fund the model continued by ARPA-E and adapt it in other scientihc areas to
develop new technology platforms. Large collaborative research programs modeled
aner ARPA, the precursor to DARPA and ARPA-E, are particularly needed now.
r
Consolidate science initiatives across agencies and engage multiple academic
disciplines, funding large innovation hubs that address fundamental science
questions that can be applied across multiple industries instead of focusing on
incremental applied problems.
r
Extend research and innovation policy to reach beyond science and technology,
tapping into the unique capabilities of economic regions of our country to
maximize the benehts of the geographic cluster, in areas as diverse as media,
education, the creative arts, aquaculture, logistics, and manufacturing.
r
As described in the 2008 ARISE report by the AAAS, provide particular support
for early career researchers, such as seed grants for unproven ideas, expanded long-
term early career awards, career-stage appropriate expectations when reviewing
grants, and policies responsive to the needs of primary caregivers.
26

12 Center for American Progress | Universities and Innovation Networks
Supporting the translation
of knowledge


Early-stage discoveries yield the greatest impact on the economy when they
transition out of the laboratory and into the private commercial sector. Yet even
the most promising breakthroughs face very real hurdles as they struggle to
translate into the market where they can make social and economic impact.
27

Many promising discoveries falter before they even have an opportunity to be
considered by the private sector, which generally lacks the long investment
horizons and risk appetite to invest in ideas at the point most federal funding stops
supporting them. Te cultural gap between academia and industry further hinder
the commercialization process. As such, federal policies can play an important
partnership role to bridge the gap between research and the marketplace.
Tis section of the report looks at four key considerations in creating incentives
for commercialization:
r
Te economic impact of university spin-out companies
r
Technology transfer omces-under-resourced but critical partners
r
Te innovation gap
r
Existing federal programs of potential beneht
Lets turn hrst to the economic impact of university startups.
The economic impact of university spin-out companies
In 1980, the Bayh-Dole Act enabled universities to own and manage the
intellectual property arising from federally sponsored research. From an economic
development standard, the Bayh-Dole Act was a boon to local economies and
to society at large as new technologies were introduced to market. Shortly aner
1980, products and spin-outs-start-ups based on university IP-steeply rose as
universities and faculty had incentive to commercialize their inventions.
13 Center for American Progress | Universities and Innovation Networks
In 2009 alone, at least 596 start-ups based on university licenses were created
across the country, and 658 new products were introduced to market.
28
In the
three years between 2008 and 2010, companies based on USC research alone have
raised nearly $400 million in capital.
29
University technology transfer has a strong local economic development impact.
30

According to the Association of University Technology Managers, or AUTM,
annual survey, between 70 percent and 80 percent of all university start-ups are
headquartered in the same state as the university from which they spun out.
Between 1980 and 1999, university start-ups in the United States created $33.5
billion in economic value, at an average of $10 million per start-up. By 2007, 3,388
university start-ups were still operational.
31
Moreover, the transition to the marketplace does not just occur through the creation
of new companies. Early university innovations might emerge through a spectrum
of knowledge-transfer routes, such as faculty consulting, students graduating and
taking jobs in industry, inventions licensed to established companies, and university
start-up enorts to turn ideas into new high-growth companies.
Universities by their very nature depend on an open and collaborative exchange of
ideas. Te vast majority of knowledge in universities is transferred into the private
sector through open channels.
32
Some of these knowledge transfer routes could
be enhanced, particularly through more deliberate auempts by universities and
industry to work together. Although many universities have focused considerable
amounts of their own resources on technology transfer enorts, this crucial stage of
the innovation process has been greatly underfunded to date.
Technology transfer officesunder-resourced but critical partners
Te United States enacted the Bayh-Dole Act to encourage universities to
commercialize their research and to encourage this type of impact, but it did
not provide resources to make this happen. Universities nevertheless have set
up technology transfer omces to manage intellectual property and facilitate the
transfer of technology.
Tese omces, however, on average tend to lose money, in part because a successful
invention can take 10 years or more to generate royalties.
33
So, although university
technology transfer omces provide benehts to their local communities, they have
Although many
universities
have focused
considerable
amounts of their
own resources
on technology
transfer eorts,
this crucial stage
of the innovation
process has
been greatly
underfunded
to date.
14 Center for American Progress | Universities and Innovation Networks
limited ability to reinvest resources to enhance interactions with industry in a
strategic and proactive manner.
Technically, universities may charge the cost of patenting to their administrative
cost pools for what university budget omces call facilities and administrative
cost reimbursement, or F&A. But the administrative components of F&A
are capped by the federal government at 26 percent, which means these costs
enectively dont get reimbursed.
Te lack of resources for technology transfer is even more acute with the
growing expectations for commercialization and economic development based
on university research. Tis critical knowledge transfer function has become an
unfunded mandate in the majority of universities, limiting the ability to aid in the
successful translation of research into products, companies, and jobs.
The innovation gap
Te university new venture process is deeply innuenced by early stage capital.
34

Some unfamiliar with the commercialization process may look to private industry
to address this opportunity through investment in early-stage innovations, but
as analysts Christine Gulbranson and David B. Audretsch point out, University
research does not passively spill over for commercialization and innovation.
35
Early-stage venture markets are inemcient-meaning they do a poor job of
identifying the best opportunities and investing in them.
36
So, even some of the
most promising innovations struggle to have a chance in the free market. Further,
most university seed-stage innovations today are too risky for even the most
intrepid venture investors, which means those trying to commercialize university
innovations face a large feasibility and funding gap.
It is dimcult to identify signihcant innovations that were passed over by the
private sector since, by dehnition, the potential of these inventions has not been
realized. But data from the Association of University Technology Managers
indicates that opportunities are overlooked; the number of patents hled to every
startup formed is 20-to-1.
37
Venture capital used to be the risk capital for the building of seed-stage high-
growth companies, but the percentage dedicated to seed hnancing remains only
15 Center for American Progress | Universities and Innovation Networks
about 5 percent of the total venture capital invested, according to the 2011 Q2
PricewaterhouseCoopers MoneyTree report.
38
Tis is the result of a market failure
that needs to be addressed at the intersection of research and the private sector.
A recent growing focus on commercialization at the federal level is encouraging,
but there is a risk that enorts could lead to a shining of priorities away from
fundamental research funding. Proof-of-concept funding should be expanded, but
kept separate, applied to only those projects that have led to innovations that cross
a threshold of promise in the commercial sector.
Existing federal programs of potential benefit
Unfortunately, very liule of the tens of billions of federal dollars currently invested
in early-stage university research can be used to explore the commercialization
potential of the resulting innovations and help bridge development gaps. Of the
related programs currently sponsored by the federal government, many do not
achieve their full potential in addressing these gaps. Linking these programs,
which span several agencies, through a Common Application grant program
proposed by our colleagues Jonathan Sallet and Sean Pool in their report in this
series will streamline federal spending and address current weaknesses.
Te Small Business Innovation Research and Small Business Technology Transfer
program administered by the U.S. Small Business Administration, which allocates
2.5 percent of federal agency grants for small businesses, has been a resource for
some small companies seeking to bring early-stage innovations to market. Yet many
university innovations are too early to spin out into a company, so this program does
not fully address the need for earlier-stage proof-of-concept funding.
Likewise, the National Science Foundation has been experimenting with industry
partnerships through its Partnerships for Innovation program and Engineering
Research Centers. And the National Science Foundation is in the process of
expanding the Partnership for Innovation program in response to the America
COMPETES Act reauthorization at the end of last year.
But the scope of these programs to date remains narrowly focused, leaving an
opportunity to tap into the broader research enterprises at each university.
Case in point: Federal auempts to fund proof-of-concept research such as the
NSF Accelerating Innovation Research program can be a powerful force in
16 Center for American Progress | Universities and Innovation Networks
transforming federally funded research into new products, companies, jobs, and
sustainable innovation ecosystems if they focus on building skills and community.
Programs at universities that bring together mentors, investors, and entrepreneurs
at universities have paid dividends in terms of culture change and increased
commercialization. But currently the NSF program is small, with grants being
awarded centrally. Coupling these NSF enorts together could provide a robust
opportunity to broaden the impact of these enorts to strengthen industry/
research partnerships and develop local innovation ecosystems.
Te Economic Development Administration has pioneered partnerships with
other agencies through its i6 program (an interagency program that provides $1
million in funding over two years to a local ecosystem to catalyze technology
commercialization, new venture creation, and jobs) as well as its Energy Regional
Innovation Cluster initiative, which stand to positively innuence the formation
of regional clusters and cluster strategy development. Tese kind of nexible,
collaborative partnerships need to become the new model for success.
More recently, the National Institutes of Health introduced various new
programs, such as the so-called BRDG-SPAN program, a pilot program aimed
to fund the transition from early discovery closer toward commercialization,
and the soon-to-come National Center for Advancing Translational Sciences, a
translational science center. Tis follows on the heels of the revamped Clinical and
Translational Sciences Award, NIHs multimillion- dollar grant program to fund
institutes that transition discoveries from bench to bedside.
While many of these programs target dinerent parts of innovation ecosystems and
dinerent stages of the innovation lifecycle, there is no unifying strategic frame-
work uniting their implementation. As discussed in the hrst report in this series
on science and economic competitiveness, Rewiring the Federal Government
for Competitiveness, creating an overarching Common Application that stream-
lines the many similar and closely related grants and assistance programs could
help reduce redundancy while increasing the ability of these programs to be more
strategically and enectively implemented.
Policy recommendations
Te federal government can break down barriers between federally funded, early-
stage research and private-sector investments in innovation in order to create
Programs at
universities that
bring together
mentors, investors,
and entrepreneurs
at universities have
paid dividends
in terms of
culture change
and increased
commercialization.
17 Center for American Progress | Universities and Innovation Networks
new products, companies, and jobs. Te federal government can help support
knowledge and technology transfer with the following actions:
r
Maintain the current legal framework of the Bayh-Dole Act of 1980 so that
universities will continue to invest in technology transfer enorts.
r
Invest in more translational research funding. Tis increase should not be at the
expense of fundamental research; we must invest on all fronts and also beuer
coordinate funding across agencies and programs. University-based translational
programs such as the Clinical and Translational Sciences Award are critical for
moving from bench to bedside and should be continued.
r
Structure translational programs for maximum impact. Tese programs
should require that industry experts, investors, and entrepreneurs be involved
in the solicitation, development, and selection of proposals to enhance the
traditional peer review process. Translational projects should have a clear
project plan that leads toward commercialization, with active management to
milestones alongside mentoring and guidance by relevant experts along the
way. Te Coulter Foundation has developed one very enective model that can
be emulated.
39
r
Coordinate health- and biotechnology-related translational and Small
Business Innovation Research and Small Business Technology Transfer
programs within the National Institutes of Health through a single program
such as NCATS, managed by a group that understands commercialization and
translational research, and coordinate other commercialization and proof-of-
concept programs through a Common Application Innovation and Economic
Development Grant Program, as described in Rewiring the Federal
Government for Competitiveness.
r
Implement a mechanism for Translational Supplemental Awards when
warranted, determined only aner research yields results. Te National Science
Foundations I-Corps Program, which provides proof of concept funding and
mentoring to select faculty at universities across the country, is promising and
should be scaled and expanded to support projects across all agencies, and
provide larger awards (up to $150,000) when warranted. Further, consider a
program for postdoctoral fellows to learn about commercialization and continue
proof-of-concept work on their dissertations if they show commercial promise.
18 Center for American Progress | Universities and Innovation Networks
r
Design translational funding programs such that technology transfer omces
are deeply engaged rather than marginalized. Provide funding to support these
omces with dedicated resources to support the translational program to set
them up for success.
r
Structure proof-of-concept programs in a sustainable way. Although some
universities have managed to secure donor and private-sector funding to cover
some of the costs, even the most successful programs struggle to become
sustainable on these sources alone. Instead of structuring proof-of-concept
funding as short-term pilots, leverage other funding sources, such as industry
and donor support in parallel, to extend the impact of the federal funding.
Given the importance of transitioning between early-stage and spin-out to
the economy, funding proof-of-concept projects is an appropriate role for the
federal government to play.
r
Reward universities commiued to advancing innovation and building
their technology transfer omces so that they work well. To ensure that
a translational program will be successful, use the enectiveness of the
technology transfer omce and the universitys commitment to innovation
as criteria. Tis will have the added beneht to motivate universities to
continually improve their technology transfer operations.
r
Review and structure connict-of-interest policies at the National Institutes
of Health and other agencies to maintain academic integrity without puuing
undue restrictions on commercialization activity or additional administrative
burden that could otherwise be invested in technology transfer activities. Put
into place mechanisms for disclosing and managing connicts of interest, with
guidance for faculty before they come up against these issues.
19 Center for American Progress | Universities and Innovation Networks
Seeding innovation ecosystems


While an acute need exists for proof-of-concept funding for ideas that emerge
from research, the innovation gap goes beyond the hnancing gap. Linkages
between the university and the private sector are critical to bring relevance to
research. And as an idea develops and moves into the private sector, it ideally
will stay local and thrive. Tere is a need to strengthen the relationships between
universities, industry, government, and nongovernmental organizations to nurture
sustainable local and regional innovation ecosystems that can support the growth
and success of new ventures.
Elements of such an entrepreneurial ecosystem include:
r
Talent, including experienced entrepreneurs willing to share their knowledge
and jump in as early-stage chief executives
r
Early-stage capital
r
Access to early adopters, customers, and suppliers
r
Creation and collaboration space near intellectual hubs
Universities are the critical piece of the puzzle beyond the development
of knowledge and the commercialization of research. Tey develop our
nations workforce, create connections between people, and cultivate inspired
entrepreneurs that feed back into the system. As a result, universities can play a
central convening role for local and regional innovation ecosystems that can serve
as a platform for growing a sustainable and robust economy.
The case for innovation ecosystems
Studies show that universities beneht from programs that enable university
innovators, entrepreneurs, and investors to connect with one another.
40

Increasingly, universities are seeking out ways to hnance these types of programs
in the absence of federal support.
20 Center for American Progress | Universities and Innovation Networks
Enorts have been highly variable and dependent on funding. Some universities
are fortunate to receive assistance through major gins or local funding, and boast
innovation centers with grant programs that have demonstrated great leverage
and great success. Christine Gulbranson and David B. Audretsch wrote about
two programs centered in engineering schools, the MIT Deshpande Center for
Technological Innovation and the University of California, San Diegos von Liebig
Center.
41
Aner granting less than $10 million to projects, these two centers helped
advance 26 start-ups that have raised a total of $160 million in outside investments.
In parallel over the last hve years, the Coulter Foundation has funded programs
specihcally in biomedical engineering departments across the country, including
at Stanford University, Georgia Tech, Drexel University, and the University of
Virginia, creating best practices along the way.
A dinerent example is the USC Stevens Institute for Innovation at the University
of Southern California, launched in 2007 with a $22 million gin. Tat funding has
been used so far to signihcantly re-engineer business development and licensing
operations, extend beyond traditional technology transfer to support innovators
across all schools and disciplines, develop programs to fund and mentor faculty
and student teams, and promote a universitywide culture of innovation.
Te key to these programs is that they dont focus exclusively on accelerating
individual projects but rather on developing lifelong innovation skills and a
community of investors, entrepreneurs, and other stakeholders. Tey can shin
the entire culture at the university to celebrate innovation and entrepreneurship.
For example, USCs Ideas Empowered program, launched in 2010, engaged 89
researchers in the latest round of competition for commercial support, despite
the fact that receiving a small grant (generally between $50,000 and $100,000)
requires months of preparation and mentoring. Tis demonstrates the appetite
for many faculty and students to get involved in commercialization if they believe
they will receive the coaching and connections with the local community they
need to be successful.
Te federal government should consider competitive block grant models that
deploy funding locally and strengthen innovation ecosystems, in addition to
funding numerous smaller grants centrally. Rewiring the Federal Government
for Competitiveness, also in this series on science and economic competitiveness
explores this idea in more detail. Programs should be consolidated in a way that
makes them cost-emcient and enective, and the impacts measured broadly.
The federal
government
should consider
block grant models
that deploy
funding locally
and strengthen
innovation
ecosystems, in
addition to funding
numerous smaller
grants centrally.
21 Center for American Progress | Universities and Innovation Networks
IMPACT
In 2009, a policy paper called Innovation Model Program for Accelerating the
Commercialization of Technology, or IMPACT, proposed a $20 million pilot,
to fund 10 innovation ecosystems that would tap into the intellectual capital
and convening power of universities and provide proof-of-concept grants and
mentoring to research projects.
42

Te funding from each demonstration grant would complement existing activities
already in place at the university in order to provide, at a minimum:
r
Proof-of-concept funding with appropriate project management
r
Community engagement, networking, and team-building
r
Business strategy and mentoring (universities may engage additional students
and curriculum to support this)
r
Educational resources
r
Media relations and showcasing of projects
r
Measurement and evaluation of results
Tis program could provide 10-to-1 or even 20-to-1 leverage on the federal
governments investment. It is modeled aner successful proof-of-concept
programs of USC, MIT, UCSD, Georgia Institute of Technology, and the Coulter
Foundation, as described above, which have demonstrated the ability to auract
outside private-sector investment many times greater than the federal funding
invested.
Various agencies have auempted to put forth this type of approach recently. Te
National Science Foundations Accelerating Innovation Research, or AIR, program
and two i6 programs coordinated by the Department of Commerce are two cases in
point, but neither is quite in the form or scale suggested by the IMPACT proposal.
Te key is for this funding to be managed from a local level to engage stakeholders
and provide additional value beyond just the individual grant funding. Te
programs would be universitywide so that they would contribute to a culture
change across all disciplines and tap into the broadest base of research funding.
Te need is now acute. At this point we must fund this concept beyond a pilot
level; $80 million per year would support at least 40 university ecosystems
22 Center for American Progress | Universities and Innovation Networks
across the country. If past experience can be a guide, this level of funding could
potentially stimulate $1 billion in private-sector investment in ideas that would
otherwise be too early and risky for investors to currently bet on.
Policy recommendations
Innovative capacity in regions can be strongly developed with universities at their
core with the following policies:
r
Provide funding for universities to enhance their innovation ecosystems,
including proof-of-concept funding and mentoring. Te 2009 IMPACT policy
proposal discusses in detail how the federal government can support this enort,
but two years later must be expanded to support dozens of universities for
maximum impact. Te proposed Department of Competitiveness Common
App, detailed in Rewiring the Federal Government for Competitiveness,
would allow for more specihc IMPACT allocation from these funding pools.
One possible source of funding is described in the leveraging private-sector
R&D section below.
r
Distribute proof-of-concept funding locally, not centrally, to centers within
universities or collaborative regional enterprises engaging multiple universities
and other stakeholders into the local ecosystem. Regional innovation
should not be orchestrated from Washington, D.C. Instead, competitive
block grants enable regions to budget and deploy in programs with locally
developed outcome measures, since regional players understand best their own
opportunities and gaps.
r
Expand the National Science Foundations Partnerships for Innovation
program as described in the America COMPETES Act reauthorization,
with fewer, larger grants to support partnerships between larger and smaller
universities, which will create a critical mass and sharing of best practices
necessary to bolster the program.
r
Refocus economic development funding on innovation-based economies, which
have high growth potential, and focus on people rather than infrastructure. Te
most enective investment of these dollars is on the development of talent and the
networks among innovators, investors, and entrepreneurs.
23 Center for American Progress | Universities and Innovation Networks
r
Enhance the Small Business Innovation Research and Small Business
Technology Transfer program in three ways consistent with current statutory
authority: remove the SBIR requirement to have the primary researcher
employed by the company receiving the grant; set aside a portion of SlR
funding for proof-of-concept centers before SBIR phase 1 grants are awarded;
and partner with local innovation ecosystems around universities to help select
grantees and provide mentoring and networking to enhance the enectiveness of
the grants.
r
Work with governors to try to address state policies that might stine new
ventures from universities; for example, some states forbid public institutions
from taking an equity stake in spin-out companies or limit the entrepreneurial
involvement of faculty who are state employees.
r
Consider the impacts of developing human capital as much as the intellectual
property when measuring the outcomes of university research.
24 Center for American Progress | Universities and Innovation Networks
Measuring for success


Traditional technology transfer measures such as patents hled and
licensing revenues are inadequate to convey the important consequence of
transformative research to our nations scientihc and economic development and
competitiveness. Innovation can have many outcomes, such as:
r
New knowledge that can be built upon
r
New linkages between collaborators
r
New skills in the workforce
r
Te ability for a region to retain talent and provide jobs to match their needs
r
New companies, services, and products in the service of the public good
r
Economic growth and employment
All of these outcomes boast intrinsic value, and they frequently build on each
other, but we onen only measure that last category-economic growth and
development-without demonstrating the connections with the rest of the
outcomes.
Tere is a belief that science leads to greater innovation, which leads to
economic impact, yet it has been dimcult to make the link explicitly. Meanwhile,
universities impact is much broader than simply the transfer of technologies,
43

and academia onen hesitates to report on outputs because of fears the data
will underestimate the actual impacts, making it even more dimcult to gain the
necessary insights for policymaking.
Metrics can focus enorts and drive results, but our ability to measure innovation
in the United States is still very basic. It becomes very dimcult to evaluate which
policies succeed and course-correct without an adequate way to measure outcomes.
We need to develop a much more sophisticated understanding of how innovation
grows, as well as the broad social and economic benehts of innovation to regions
and society as a whole. To beuer lead to a sustainable innovation, we must measure
25 Center for American Progress | Universities and Innovation Networks
our investments in innovation accurately and incorporate tracking into any newly
proposed, integrated programs. Tis section of the paper explores several ways to
comprehensively measure the impact of universities, and complements the broader
proposals put forth by George Washington University visiting professor Andrew
Reamer in his paper in this series titled Economic Intelligence.
Technology transfer metrics
Te Association of University Technology Managers, or AUTM, tracks the activities
of university licensing omces. Among the measures most frequently cited are
licensing revenues, number of licenses executed, patents hled and granted, and
number of start-ups based on university intellectual property. Tese can be crude
measures because the value of one patent, or one license, does not equal another.
Additional outcomes-based technology transfer metrics could serve as an
important indicator of economic activity, but they are rarely measured. Seed
hnancing and total capital raised by university spin-out companies, for example,
renect the economic impact of companies formed and provide outside validation
of the prospects of growth. Jobs created, number of products reaching market, and
product sales would also be valuable indicators of commercialization.
Looking beyond traditional technology transfer metrics
Technology transfer metrics are useful, but are limited in their perspective. Tey
do not emphasize the important educational and service role that a technology
transfer omce and other university innovation programs can play. Te ongoing
success of innovation enorts at the university level should be judged based on
their ability to enhance all four of the following key areas:
r
Broadening the impact of the most promising university innovations through
pathways such as commercialization, start-up formation, and industry
collaborations
r
Celebrating innovation and entrepreneurship, and increasing the enthusiasm
and engagement of faculty and students across all disciplines in such activities
r
Developing lifelong innovation and entrepreneurial skills
26 Center for American Progress | Universities and Innovation Networks
r
Developing a local community that supports the advancement of new ventures
and innovation.
Tese are not easy things to measure, to be sure, but that should not stop us
from trying.
Further, the university technology transfer omce, while very important, is not the
only knowledge channel at a university. Focusing all measurements there will not
renect the broader consequences of research. One study, for example, hnds that
ideas emerging from the Massachuseus Institute of Technologys engineering
school found their way into products through intellectual property licensing only
7 percent of the time; other channels included papers, conferences, collaborative
research, consulting, and students graduating and taking positions in industry.
44
Fortunately, Section 521 of the America COMPETES Act reauthorization passed
last year by Congress requires that the National Science Foundation contract with
the National Academy of Sciences to initiate a study to evaluate, develop, or improve
metrics for measuring the potential impact of research on society. Tis mandate
gives the National Academy the nexibility to study more broadly the impacts of
research and the individuals graduating from institutions of higher learning.
Tis enort will enable us to capture the broader impacts on social well-being and
talent development as well as the hnancial success of hrms. Enorts to measure the
impact of university research that could beneht from beuer metrics include:
r
Industrial references and reliance on academic publications
r
Informal contacts between university faculty and industrial hrms
r
Hiring of university graduates
r
Firm starts based on recent graduates
r
Specihc university-industry training collaborations
r
Conferences
r
Jointly funded research activities between universities and industry
r
Contract research performed by the university for industry
r
Temporary exchanges
r
Industry usage of university scientihc facilities
r
New industrial processes, techniques, and instrumentation that can be traced to
university research
r
Case studies that can show clear linkages among industrial products, hrms, and
university research
27 Center for American Progress | Universities and Innovation Networks
All of these indicators are measurable-and together would give us a much fuller
view of the consequences of investing in scientihc research and development.
Ultimately, though, commercialization is performed not by universities but by
hrms in the private sector, which makes it dimcult to put an economic value
on outputs and directly link them to economic and other outcomes. We need a
systematic approach to measure the impact of research or programs that support
business innovation, such as technology transfer omces and incubators.
One promising approach has been developed by the Evidence Network, a Canadian
hrm that works with innovation intermediaries to assess their impacts along
dimensions such as information now, linkages, and services-using a survey-
based approach to ask private-sector clients to rate how these innovation-related
impacts supported outcomes such as revenues, employment, and investment.
So far its methodology has been used by a variety of clients, such as research and
development institutes, technology commercialization programs, and economic
development organizations.
45
It has provided a means to quantify and monetize the
impact of these organizations that otherwise would hnd it very dimcult to assess
their value, and to rigorously demonstrate the connection between their impact on
company innovation and their impact on market performance.
Although patenting and licensing provide an important avenue for the
advancement of some innovations, the impacts of university research will be
vastly underestimated if only measured through traditional technology transfer
metrics. We need a much more sophisticated understanding of the dinuse social
and economic benehts of innovation clusters to regions, which these measures
suggested above would accomplish.
Measuring sustainability through talent and linkages
Investments in scientihc research do not guarantee short-term economic growth,
but are essential to long-term competitiveness. How, then, can the federal
government measure success in the short term? One way is by measuring knowledge
and skill development and the growing linkages between people and institutions,
which would enable us to understand both the sustainability of an innovation
ecosystem and its ability to address more and more complex global challenges.
Although
patenting and
licensing provide
an important
avenue for the
advancement of
some innovations,
the impacts of
university research
will be vastly
underestimated
if only measured
through traditional
technology transfer
metrics.
28 Center for American Progress | Universities and Innovation Networks
Tis will be a complicated endeavor, but fundamentally a project or institutions
ability to catalyze new linkages between researchers and industry adds value to the
innovation network or networks in which it resides. Tus a collaboration index
could look at new connections created as a result of the research investment to
measure these linkages.
Advancements in social networking in particular could be used to track the
advancement of talent and connections between researchers and institutions. Te
professional social networking site LinkedIn, for example, allows individuals to
provide information about their professional careers and connections and connect
with one another. A site like this could be used to provide insight into the path of
graduates in the workforce and enhanced linkages as a result of research projects.
It could also be used to stimulate some of these connections.
Ultimately, the true test of innovativeness is our ability to be part of the global
intellectual conversation, and it would be valuable to do a study across industries
to analyze the innuence of the United States and see how it is shining. Looking at
where the top scientists and other experts are born, trained, and employed would
be important to understand. Based on policy decisions in the past decade or two,
one could speculate that certain areas such as climate science and regenerative
medicine might demonstrate a signihcant waning of innuence, while our expertise
in computer science may still be strong. Studies should be conducted to validate
whether this is indeed the case.
Measuring the U.S. innuence in a variety of industrial and scientihc sectors as well
as our human capitals capacity to innovative could lead to policy recommendations
that would help us regain and maintain competitiveness and project policy impacts
long before the direct impacts are recognized. We might be able to identify the
capacity to innovate long before the direct impacts are recognized.
Creating the measurement infrastructure
Currently, some innovation and economic data exist, but in dinerent information
technology systems within separate agencies in the federal government-and with
disparate standards and no easy way to share them. Further, much of the data are
collected in an ad hoc manner and are onen survey-based. Tis lowers the quality
and increases the resources required to supply it.
29 Center for American Progress | Universities and Innovation Networks
What we need are microdata on individual research projects, on one standard
platform that is accessible to researchers who can analyze the relationship between
inputs such as funding, supports such as skills, and outputs such as products
and employment. We can learn from the Brazilian database of researchers and
institutions called Laues. Launched in 1999, Laues is a public network that
enables the accurate tracking of knowledge and innovation activities. Tis virtual
community has now been introduced in many countries to include more than 1.7
million registered CVs of researchers at more than 14,000 institutions. All data,
except for personal information, are public. Tis database provides a platform
for assessing research activities nationally; users can locate other collaborators
and expertise, identify and evaluate competencies, characterize networks and
connections, and evaluate outcomes from individual research investments.
46

Te National Science Foundation and the National Institutes of Health have
begun a laudable enort called STAR METRICS that works with universities and
other research institutions to collect accurate and consistent microdata about
research projects so it can be analyzed. Other enorts have been taken on by
individual researchers, such as the database developed by University of California,
Davis professors Martin Kenney and Donald Pauon on initial public onerings;
the data gathered on the production of scientists by economic professors Paula
Stephan at Georgia State and Sharon Levin at the University of Missouri-St.
Louis; and an upcoming patent database developed by Harvard Business School
professor Lee Fleming and his colleague Vetle Torvik at the University of Chicago.
Tese sources could be analyzed alongside U.S. Internal Revenue Service
individual and corporate tax data, data from the U.S. Patent and Trademark Omce,
and other publicly available datasets. Individual privacy could be maintained
while providing insight into innovation trends.
Despite the need and opportunity, no organization exists to focus on the
measurement of innovation. Such an organization would be able to tie into all the
disparate sources of data and begin to relate federal research investments to social,
scientihc, and economic outcomes, and to paint a rich picture of the impacts of
various policy decisions and research investments.
To best capitalize on this opportunity, an Omce of Innovation Analysis should be
created. Tis omce could report directly to the Assistant Secretary for Economic
Policy in the Department of Treasurys Omce of Economic Policy, paralleling the
way the Omce of Tax Analysis reports directly into the Omce of Tax Policy.
Despite the need
and opportunity,
no organization
exists to focus on
the measurement
of innovation.
30 Center for American Progress | Universities and Innovation Networks
While this suggestion goes beyond the more immediate policy recommendations
of my colleague Andrew Reamer in his paper titled Economic Intelligence, the
goals are the same
Policy recommendations
We can improve our ability to catalyze and accelerate innovation if we focus on
appropriate metrics for measuring success. Among the ways to do so are to:
r
Implement new metrics to measure the consequences of research and
individuals graduating from universities, as mandated by the recently passed
America COMPETES Act. Dehne the metrics in a way to ensure they more
broadly renect universities enectiveness in growing ecosystems and capacity
for sustainable impact, through licensing and start-up creation, teaching
commercialization skills, broadening engagement across the research
community, developing linkages within the university and with the broader
innovation ecosystem outside the university, and successfully sharing and
implementing best practices.
r
Continue the federal STAR METRICS enorts to measure microdata on research
investments.
r
Establish an independent Omce of Innovation Analysis within the Omce of
Economic Policy in the U.S. Treasury to develop an ongoing mechanism for
measuring innovation in the United States.
r
When evaluating the success of licensing enorts, look beyond traditional metrics
such as patents and license revenues to more outcomes-based measurements
and include education and service as part of the core mission of technology
transfer omces.
r
When measuring knowledge transfer, consider broader mechanisms such as
publishing, participation in conferences, collaborative research, consulting, and
students graduating and taking positions in industry.
r
Invest in developing new methodologies for measuring linkages between
researchers, industry, and institutions. Leverage new social media tools for
tracking network-based innuences and consider creating a collaboration index
to measure the full impact of the nows of knowledge.
31 Center for American Progress | Universities and Innovation Networks
r
Reward universities that show commitment to entrepreneurship and innovation.
Prizes and other short-term incentive initiatives have the capacity to work, but
generally more sustained program initiatives such as Partnerships for Innovation
and other more recent funding enorts have a much more transformative enect
for university culture and impact.
32 Center for American Progress | Universities and Innovation Networks
Preparing for shifts
in competitiveness


New hrms are essential for job creation in the United States.
47
Since the beginning
of the Great Recession in 2007, however, new companies are launching with fewer
resources and creating fewer jobs. Tis jobless recovery is raising questions of a
new normal, where fewer workers are needed to perform higher levels of work,
and work is increasingly becoming freelance and transitory.
For corporations, competition is intensifying on a global scale, customer loyalty is
declining, corporate returns on assets have dropped to less than a quarter of what
they were a few decades ago, stock prices are much more volatile, and churn in
the S&P 500 is accelerating.
48
Amid all this change, technology is accelerating at
rates never seen before, with implications ranging from education to intellectual
property law. Increasingly, ideas now seamlessly across institutional and
international boundaries. Value is increasingly created by the now of knowledge
rather than the ownership of knowledge.
Te future of economic growth, then, will probably rest less in individual
corporations and more in networks of suppliers and customers. Similarly, stocks
of knowledge, such as individual patents and trade secrets, will have less and less
value as the now of ideas within these networks gain innuence. Tis underscores
the importance of retaining as much of the value chain as possible in the
United States. But it is also is a reminder that we must adjust to a new reality of
cooperation as much as competition.
A separate competitiveness issue is our venture capital industry. Over the past
several decades it has stimulated ecosystems, taken risks, and invested in lean
and agile startups. But due to their 10-year fund time horizons, they need to
show returns in their investments within about hve years. Tis results in much
less patience for more groundbreaking scientihc investments, thus depending on
federal funding even more for pre-commercial innovation.
33 Center for American Progress | Universities and Innovation Networks
Ten theres the revolution occurring in manufacturing. In much the same way that
new digital tools have democratized media and journalism, a new parallel revolution
is enabling people to create and share in the physical world, providing both threat
and opportunity. Te up-and-coming maker culture-highlighted in Cory
Doctorows sci-h novel, Makers, and Chris Andersons article In the Next Industrial
Revolution, Atoms Are the New Bits in Wired magazine in 2010
49
-may become
the next industrial revolution. Tis revolution is powered by a new box of tools
accessible to anyone: $2,000 worth of computer numerical control machine tools
and $1,000 in MakerBot 3D printers, easy-to-program microcontrollers such as the
Arduino, and microfactories and global supply chains ready to manufacture and ship
small batches of a new product anywhere around the world. Tese tools are available
today and are already being used to launch new products and companies, such as
Square, the high-growth start-up company that sells special credit card readers that
enable anyone with an iPhone to accept credit card payments.
At the same time, a revolution is happening in information. With vast volumes
of data becoming more and more accessible, it provides perspectives not
available before. Enormous databases of personal data within technology
companies such as Google and Facebook enable new insights into human
behavior, thought, and language.
Meanwhile, corporations ranging from start-up company 23andMe to established
pharmaceutical companies are gathering and mining genetic information at
an increasing rate. Genetic information from tissue banks combined with
longitudinal patient data can enable the rapid discovery of biomarkers that can
lead to beuer and faster cures though enhanced diagnostics, patient stratihcation,
and enhanced outcome measures.
Universities unique culture of data sharing and open access to data on the one
hand, and the richness of available data ... from the scope of research questions to
the number and diversity of patients studied ... on the other will further increase
the role of universities in the future. Biomedical innovation is becoming just
as much about data analysis as it is about biology. Tese shins will likely have
signihcant implications on the way science is conducted in the future.
As a result of all of these changes, it is worth rethinking our assumptions about
policy and looking to experiments that might lead to revolutionary, not evolutionary,
change. Some of these questions are addressed in a separate section below.
Universities unique
culture of data
sharing and open
access to data on
the one hand, and
the richness of
available data ...
from the scope of
research questions
to the number and
diversity of patients
studied ... on the
other will further
increase the role
of universities in
the future.
34 Center for American Progress | Universities and Innovation Networks
Policy issues to consider
Many of these shins are only now unfolding, and we will not know their full extent
right away. As a result, the policy implications are not completely clear. Yet we
should already begin to think dinerently and look to revolutionary change. Just a
few examples, which are meant to be illustrative, include the following:
r
Develop policies that support the democratization of tools, new fabrication
facilities, and new ways of manufacturing across all helds from nanotechnology
to biotechnology. Explore the role of cran in research-meaning the hands-on
skills necessary to build instrumentation and experiments, leading to greater
insights and innovation during the process of research-and do a survey on
tools and transnational projects to enable that cran.
r
Improve access to manufacturing and prototyping facilities for university
communities. Tese facilities can also provide access, along with training
programs, to residents of any job-starved neighborhoods nearby.
r
Enable linkages and cooperation among universities on a global basis now
that innovation is global. Tink of collaboration more than competitiveness-
consider win-win solutions rather than a zero-sum-game; new innovations will
provide beuer quality of life and grow the global economy in ways that will
provide opportunities to everyone.
r
Push toward more open data publishing requirements. Tis could include
incentives for researchers working on hypothesis-driven projects who would
otherwise wait until aner they have analyzed their data and published their
conclusions to accelerate publishing raw data.
r
Enable new platforms across many disciplines, such as personalized medicine, to
capitalize on a new, low-cost, networked, and open type of innovation, similar to
the innovation that was enabled by the Internet.
r
Consider new intellectual property policies that maximize innovation
within this framework as appropriate, which relies less on protection than
on encouraging sharing. Develop ways to beuer measure and reward nows of
information, rather than stocks of information (such as patents).
35 Center for American Progress | Universities and Innovation Networks
r
Change funding and collaboration models as the world becomes increasingly
complex. As so-called wicked problems such as global climate change,
homeland security, and health require collaboration across numerous disciplines
and continents, explore how transaction costs between collaborators can be
reduced.
50
Drive new modes of digital scholarship, where the result of a study
can be published in multimedia or other forms that cannot be put on a shelf in
the stacks of the library.
r
Create incentives for longer-horizon venture capital funding models.
r
Reconsider peer review to increase risk-taking and out-of-the-box ideas from
edge thinkers. Create incentives for interdisciplinary projects and remove tenure
barriers for boundary-spanners and nontraditional academics.
r
Consider incentives for alternative models to the traditional tenure clock that
would enable early-career risk-taking, such as the 10-year contracts at the
Howard Hughes Medical Institute.
Tese recommendations will require more thought and involvement by a wide
range of stakeholders, and will likely not be easily innuenced by national policy
alone. But these issues should be kept in mind as we consider revolutionary, rather
than evolutionary, change.
36 Center for American Progress | Universities and Innovation Networks
Conclusion


Despite our nations reputation for its innovativeness and entrepreneurial spirit,
we are falling behind and struggling to compete in the global marketplace. Te vast
majority of economic growth in America arises from technological innovation,
which depends heavily on research universities. We have an urgent need to support
university research-both fundamental and applied-and the information
networks and innovation ecosystems that undergird and emerge from it.
We have an opportunity today to take advantage of a great resource that is the
envy of the world, our higher education system. In order to do so, we must invest
in basic research that:
r
Creates new knowledge and new talent
r
Supports pathways for knowledge and technology translation
r
Helps catalyze innovation ecosystems that have universities at their core
r
Auracts and rewards the deployment of industry resources
r
Develops new ways to measure success
In addition, we must keep our eye on the changing landscape of innovation and make
sure that our policies and institutions are well-equipped to take advantage of these
shins, and where possible drive a new model for innovation in the 21st century.
37 Center for American Progress | Universities and Innovation Networks
About the author
As vice provost for innovation at the University of Southern California and
founding executive director for the USC Stevens Institute for Innovation, Krisztina
Z Holly leads a team of more than 30 to translate USCs most groundbreaking
ideas to market and develop educational programs to help faculty and students
make maximum impact with their ideas. Holly curates TEDxUSC, the original
independently organized TED event that has spawned more than 2,000 similar
events worldwide.
Her columns have appeared in BusinessWeek, the Humngton Post, CNN.com,
and Forbes. Before USC, Holly was an engineer and entrepreneur. Also, as the
founding executive director of MITs Deshpande Center for Technological
Innovation, she helped spin on nine start-up companies from MIT research that
raised more than $40 million in venture capital. Named one of the Champions
of Free Enterprise by Forbes in 2010, she serves on various advisory boards in
the United States and abroad, including the U.S. National Advisory Council on
Innovation and Entrepreneurship.
Acknowledgements
Te author would like to oner special thanks to those who reviewed portions
or all of this paper, including in alphabetical order: Brian Barge (Te Evidence
Network), Linda Bernardi (Cloudant, Inc.), Johanna Blakley (University of
Southern California Norman Lear Center), Anthony Boccanfuso (National
Academies University-Industry Demonstration Project), Claude Canizares
(Massachuseus Institute of Technology), Michael Crow (Arizona State
University), Joichi Ito (Creative Commons, MIT Media Laboratory), Gururaj
Desh Deshpande (A123, Sparta Group LLC), Brad Feld (Te Foundry Group),
Jennifer Grodsky (University of Southern California), Randolph Hall (University
of Southern California), Mark Hatch (TechShop, Inc.), Alan Kay (Viewpoints
Research Institute), Carl Kesselman (University of Southern California), Cesar
Hidalgo (Massachuseus Institute of Technology), Julia Lane (National Science
Foundation), Michael Ledford (Lewis-Burke Associates LLC), Ellen Levy
(LinkedIn), Bob Metcalfe (Polaris Venture Partners, University of Texas Austin),
Steve Moldin (University of Southern California), William Ouchi (University
of California, Los Angeles), Ed Paisley (Center for American Progress), Andy
Rappaport (August Capital), Paul Rodeno (Security Business Bank of San Diego),
38 Center for American Progress | Universities and Innovation Networks
Duane Roth (CONNECT), John Seely Brown (University of Southern California,
formerly Xerox), Larry Smarr (California Institute for Telecommunications and
Information Technology), Tobin Smith (Association of American Universities),
Mark Stevens (Sequoia Capital,) Charles Vest (National Academies), and Mary
Walshok (University of California, San Diego).
Members of our taskforce on science and competitiveness provided constructive
criticism, feedback, and ideas indispensable to this series. In particular, James
Turner, Neal Lane, Brian Kahin, Arti K. Rai, Rachel Levinson, Daniel Sarewitz,
John Alic, and Chris Hill provided critical feedback. Finally, this series would also
not have been possible without important and substantive contributions from
Sarah Wartell, Michael Eulinger, Jitinder Kohli, Kate Gordon, and Reece Rushing.
39 Center for American Progress | Universities and Innovation Networks
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1 Nathan Rosenberg, Innovation and Economic Growth
(Organisation for Economic Co-operation and Development, 2004),
available at http://www.oecd.org/dataoecd/55/49/34267902.pdf.
2 Robert Atkinson and Scott Andes, The Atlantic Century:
Benchmarking EU and U.S. Innovation and Competitiveness
(Washington: The Information Technology and Innovation
Foundation, 2009), available at http://www.itif.org/les/2009-
atlantic-century.pdf.
3 National Academies, Rising Above the Gathering Storm, Revisited:
Rapidly Approaching Category 5 (Washington: National Academies
Press, 2010), available at http://www.nap.edu/catalog/12999.html.
4 Organisation for Economic Co-operation and Development, Main
Science and Technology Indicators (2010), available at http://www.
oecd-ilibrary.org/content/data/data-00182-en/.
5 National Academies, Rising Above the Gathering Storm, Revisited.
6 Organisation for Economic Co-operation and Development,
Education at a Glance 2009: OECD Indicators (2009), available
at http://www.oecd-ilibrary.org/education/education-at-a-
glance-2009_eag-2009-en.
7 National Science Foundation, Division of Science Resources
Statistics, Survey of Earned Doctorates, (2009), available at http://
www.nsf.gov/statistics/srvydoctorates.
8 Richard McCormack, The Plight of American Manufacturing.
American Prospect, December 21, 2009, available at http://prospect.
org/cs/articles?article=the_plight_of_american_manufacturing.
9 Ron Hira, U.S. Workers in a Global Job Market. Issues in Science and
Technology, Spring 2009, available at http://www.issues.org/25.3/
hira.html.
10 Thomas Donohue, Testimony before the House Committee on
Science and Technology on the Reauthorization of the America
COMPETES Act, January 20, 2010, available at https://www.
uschamber.com/issues/testimony/2010/100119_americacompetes.
htm.
11 J.R. Wu, Chinas Exports Turn Upward in December, The Wall Street
Journal, January 11, 2010, p. A8, available at http://online.wsj.com/
article/SB126310314103423521.html; and U.S. Census Bureau and
U.S. Bureau of Economic Analysis, U.S. International Trade in Goods
and Services, Press release, March 11, 2010, available at http://www.
census.gov/foreign-trade/Press-Release/2010pr/01/ft900.pdf.
12 Alan Porter and others, High Tech Indicators: Technology-based
Competitiveness of 33 Nations, (National Science Foundation,
2007), available at http://www.tpac.gatech.edu/sites/default/les/
doc/HTI_2007_nal_report.pdf; and Thomas Meri, Statistics in
Focus, (Eurostat, 2009), available at http://epp.eurostat.ec.europa.eu/
cache/ITY_OFFPUB/KS-SF-09-025/EN/KS-SF-09-025-EN.PDF.
13 Peter Goodman and Philip Pan, Chinese Workers Pay for Wal-Marts
Low Prices: Retailer Squeezes Its Asian Suppliers to Cut Costs, The
Washington Post, February 8, 2004, p. A1.
14 National Science Board, Science and Engineering Indicators 2010,
available at http://www.nsf.gov/statistics/seind10/pdf/seind10.pdf.
See also, Bureau of Economic Analysis, Research and Development
Satellite Account, 1998-2007 (2011). available at http://www.bea.
gov/national/newinnovation.htm.
15 Fred Block and Matthew Keller, Where do Innovations Come
From? Transformations in the U.S. National Innovation System,
1970-2006 (Washington: The Information Technology and
Innovation Foundation, 2008), available at http://www.itif.org/index.
php?id=158.
16 Matt Hourihan and Matthew Stepp, A Model for Innovation: ARPA-E
Merits Full Funding (Washington: The Information Technology and
Innovation Foundation, 2011).
17 National Science Board, Private Use of Public Science (1998),
available at http://www.nsf.gov/statistics/seind98/pdf/c6.pdf.
18 National Academies, Rising Above the Gathering Storm, Revisited.
19 American Academy of Arts and Sciences (AAAS), ARISE: Advancing
Research in Science and Engineering (Washington: AAAS Initiative
for Science, Engineering, and Technology, 2008).
20 Hourihan and Stepp, A Model for Innovation.
21 Ibid.
22 Sharon Levin and Paula Stephan, Linking Investigator-Initiated
Federal Research Grants with the Production and Scientic
Development of Doctoral Scientists and Engineers (Washington:
Science of Science Measurement Workshop, 2010), available at
http://www.nsf.gov/sbe/sosp/workforce/levin.pdf.
23 AAAS, Advancing Research in Science and Engineering.
24 National Institutes of Health (NIH), Average age grant data, (2004),
available at http://grants.nih.gov/grants/new_investigators/
Average_age_initial_R01.xls.
25 National Academies, Rising Above the Gathering Storm, Revisited.
26 AAAS, Advancing Research in Science and Engineering.
27 S. Price and P.Z. Sobocinski, Gap funding in the USA and Canada.
Industry and Higher Education 16 (6) (2002): 387-392.
28 Association of University Technology Managers, AUTM U.S.
Licensing Activity Survey, 2009 (2010).
29 Krisztina Holly, R. Hull, and K. Kerr, Financing Innovation: The
Evolution of startups at the University of Southern California(2011).
30 Dennis Trune and Lewis Goslin, University Technology Transfer
Programs: A Prot Loss Analysis. Technological Forecasting and Social
Change 57 (1998): 197-204.
31 AUTM, U.S. Licensing Activity Survey, available at http://www.autm.
net/Surveys.htm.
32 Ajay Agrawal and Rebecca Henderson, Putting patents in context:
exploring knowledge transfer from MIT. Management Science, 48 (1)
(2002): 4460.
33 Trune and Goslin, University Technology Transfer Programs.
34 Elias Carayannis, Suleiman Kassicieh, and Raymond Radosevich,
Strategic alliances as a source of early-stage seed capital in new
technology-based rms. Technovation, 20 (11) (2000): 603-615.
35 Christine Gulbranson and David Audretsch, Proof of Concept
Centers: Accelerating the Commercialization of University
Innovation (Kansas City: Kauman Foundation, 2008).
36 Scott A. Shane, Three-Dimensional Printing (2008), available at
http://ssrn.com/abstract=908782.
37 The Association of University Technology Managers reports that
more than 11,000 patents led in 2010 compared to just 650 high-
tech start-up companies launched in that same period. See www.
autm.net/FY_2010_Liscensing_Survey/7008.htm
Endnotes
43 Center for American Progress | Universities and Innovation Networks
38 PricewaterhouseCoopers, MoneyTree Report Q2 2011, available at
hups://www.pwcmoneytree.com/MTPublic/ns/index.jsp.
39 See Coulter Translational Partnership, available at http://www.whcf.
org/partnership-award/overview/
40 Diane Palmintera and others, Accelerating economic development
through university technology transfer (Reston: Innovation
Associates, Inc., 2005).
41 Gulbranson and Audretsch, Proof of Concept Centers.
42 Krisztina Holly, The Full Potential of University Research: A Model
for Cultivating New Technologies and Innovation Ecosystems,
Science Progress, June 8, 2010, available at http://www.
scienceprogress.org/2010/06/the-full-potential-of-university-
research/.
43 Richard Florida and others, The University and the Creative
Economy, (2006), available at http://www.creativeclass.com/rfcgdb/
articles/University_andthe_Creative_Economy.pdf.
44 Agrawal and Henderson, Putting patents in context.
45 M. Dalziel and S. Parjanen, Measuring the impact of innovation
intermediaries: A case study of Tekes. In V. Harmaakorpi & H.
Melkas, eds., Practice-Based Innovation: Insights, Applications, and
Policy Implications (Finland: Springer, 2011).
46 See a curriculum and institutions database of science and
technology areas in Brazil: Lattes Database, available at http://lattes.
cnpq.br/english/index.htm.
47 Tim Kane, The Importance of Startups in Job Creation and Job
Destruction (Kauman Foundation Research Series, 2010), available
at http://www.kauman.org/uploadedFiles/rm_formation_
importance_of_startups.pdf.
48 John Hagel, John Seely Brown, and Lang Davison, The Power of Pull:
How Small Moves, Smartly Made, Can Set Big Things in Motion (New
York: Basic Books, 2010).
49 Chris Anderson, In the Next Industrial Revolution, Atoms Are the
New Bits, Wired, February 2010, available at www.wired.com/
magazine/2010/01/_newrevolution/.
50 C.W. Churchman, Wicked Problems, Management Science, 14 (4)
(1967): B141-142.
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